Good day, ladies and gentlemen, and welcome to the Catapult First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. Would now like to turn the conference over to Mr.
Bill Wright, Vice President of Investor Relations. Sir, you may begin.
Thank you and good morning. Welcome to the Catapult's Q1 2021 earnings conference call. With me today are Orlando Zayas, Chief Executive Officer Derek Medlin, Chief Operating Officer and Chris Cuppito, Chief Financial Officer. We will be available for Q and A following today's prepared remarks. Before we begin, I would like to remind everyone that this call will contain forward looking statements regarding future events and financial performance and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports.
These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. During today's discussion of our financial performance, we will provide Certain information that constitutes non GAAP financial measures under SEC rules. These include measures such as adjusted EBITDA and adjusted net income. These non GAAP financial measures should not be considered replacements for and should be read together with GAAP results.
Reconciliations to GAAP measures and certain additional information are also included in today's earnings release, which are available in the Investor Relations section of our company website at www.ir.catapult.com. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release, which contains descriptions of our non GAAP financial measures and reconciliations of non GAAP measures to the nearest comparable GAAP measures. This call is being recorded and a webcast will be available for a replay on our Investor Relations website. I would now like to turn the call over to Orlando.
Thanks, Bill. We are thrilled to be hosting our first call as a public company today. This is a major milestone in the history of Catapult. I want to thank the entire Catapult team for their hard work and dedication during our journey to become a public company, As well as our investors, old and new, who have supported us throughout the process. We are thrilled about Catapult's unique position to serve a very large e commerce market for durable goods purchased by non prime consumers.
Today, we estimate the market to be approximately $40,000,000,000 to $50,000,000,000 annually with less than 1% penetration. As a result, we see significant greenfield opportunity for continued long term growth. On today's call, we are excited to discuss our Q1 2021 results, which feature strong revenue growth and solid profitability And also talk about our plans for continued expansion through year end and beyond. But first, I'd like to kick off the call today by providing a brief overview of Catapult. The Catapult story began in 2012 with a mission to break down financial barriers.
We provide disruptive technology that empowers underserved consumers and simplifies the shopping experience to help them secure essential items for their daily lives. Through our proprietary platform, our consumers can shop at the same high quality retailers as prime consumers, leveling the playing field. Market data tells us that approximately 38% of consumers struggle to get the things they need like furniture, appliances and laptops. This lack of access can be due to low credit scores, thin files or lack of data. Here's where Catapult steps in.
As a lease to own for non prime consumers, we use proprietary underwriting models to approve customers that others decline while they are shopping online. We provide flexible and transparent payment options whereby consumers pay a nominal fee at checkout followed by recurring lease payments At the end of the lease, the consumer owns the item. At any time, the consumer can cancel the lease and return the item or exercise discounted early purchase options. Clear and transparent experience is how we partnered with big name retailers like Wayfair, Lenovo, Purple Mattress and others. Our integration with retailers is a key to our success.
We have developed partnerships with leading shopping platforms like Magento and Shopify. Waterfall Partners with select prime credit providers like Affirm and have the strong capabilities to customize an integration directly with any proprietary platform. Our goal is to open The market opportunity for merchants and consumers, enabling transactions that would not have happened in the past. Not only do our customers love The ease and transparency of the platform, but our merchants see us as a strong strategic partner because we bring them incremental shoppers and a massive new addressable consumer base that could not effectively access in the e commerce world. One of our core values is to enhance the lives of our consumers and retail partners By providing transparent, innovative and empowering financial products.
It's also why we're looking at consumers what consumers have to say about us and how we're helping them get the things they want and need. For example, one of our consumers recently told us she had gone 4 years without sleeping in a bed because So Catapult gave me the opportunity to be able to sleep in a bed again. This is the heart of our mission. We enable underserved consumers to obtain the items that they need. Another satisfied customer wrote, I really needed an air conditioner for my upstairs room.
My budget is fixed and I wasn't able to pay full price for a portable one. Catapult was there for me, and now I can sit in my room comfortably and give this review. Thank you. We received many more testimonies like this, which not only inspires and motivates us, but also validates our mission. Carissa, our CFO, will provide more details on our Q1 performance in a few minutes, But let me give you some Q1 highlights.
Total revenue for Q1 2021 was $80,600,000 An increase of 88% year over year, driven by strong growth in originations as we continue to add new merchant relationships and expand with our existing merchants. Our adjusted EBITDA in Q1 2021 was $14,700,000 up 122 percent from $6,600,000 And the Q1 2020, reflecting the operating leverage inherent in our business model as revenue growth is outpacing our operating expense growth. And our net income was $8,100,000 in Q1, up 120% year over year. In summary, our Q1 was strong and what is extraordinary about the business we have built is that we have demonstrated the ability to rapidly grow our top line, while at the same time being profitable. We believe that the combination of both high growth and attractive margins is what differentiates Catapult.
My vision is that our growth will continue through building more relationships with high quality retailers, offering new financial solutions in addition to our current lease purchase program and increasing our customer repeat rate. Financial inclusion of the non prime consumer drives us to continue innovating and delivering new solutions for this market. Like many of you, we are eager to see the world move post pandemic and expect the microeconomic environment to be especially dynamic in 2021. As a result, we will be closely monitoring consumer spending trends, Government stimulus programs as well as credit conditions for the balance of the year. We are confident in our strategy to deliver value to our business partners and consumers and excited about the growing interest in Catapult from both merchants, e commerce platforms and Prime partners.
It is important to note that the length it takes for these merchants and partners To onboard and ramp up will impact the timing of originations and revenue. So while there may be some variability, we know that we've created a solid foundation and business model And we anticipate growth will continue. Catapult's focus will remain squarely on financial inclusion and enabling customers to obtain durable goods that they need to a transparent consumer experience, while at the same time driving shareholder value. With that, I'll turn it over to Derek Medlin, our Chief Operating Officer, to discuss our growth strategy. Derek?
Thanks Orlando. As you can see from our financial results, We executed well against our key growth strategies in Q1. In the Q1, we on boarded 26 new merchants including names you know like Motorola and Simply Mac and other e commerce retailers that are seizing the opportunity to provide expanded payment options for non prime consumers. Our platforms make it easy for merchants to incorporate Catapult as a checkout option on their website and our pace of adding new merchants is really exciting. In addition to new merchants coming on board, during the Q1 of 2021, we saw our top 10 existing merchant originations grow 75% year over year.
This growth is built on our technology first collaboration model. This includes things like using our digital assets and data capabilities to attract new consumers, Engage existing Catapult consumers and deliver award winning service. This technology and data centric focus typically allows the growth rate of the Catapult lease purchase solution to outpace our merchants' general sales growth rate, expands their penetration rate of sales and total transaction volume, which our merchants love. Like Orlando mentioned earlier, we are maniacal about serving our consumers well. We continue to invest and focus our efforts on delivering an incredible experience that will build long term relationships with our consumers.
As a concrete example of the results of this focus, I'm excited to report that we have improved our Net Promoter Score from the high 40s at year end 2020 to 63 as of the end of the Q1. Beyond giving us metrics to share, our consumer oriented approach is a driver to generate additional volume for our merchants. Our existing consumer base continues to grow and our current average lease per consumer is 1.9, a strong sign that consumers continue to trust us for their online shopping activities. The strategy for Catapult looking forward over the next several years is that our growth will be driven by 3 key initiatives. First, deepening our relationships with existing merchants and consumers.
Every year, we will look to identify new opportunities to engage our mutual customers and outpaced same store sales by strong multiple other merchant sites. 2nd, we will continue adding new merchants, ecom and omnichannel platforms and expanding our channel partners. We want to make it as easy as possible for merchants to make Catapult available where consumers want to shop. 3rd, we will continue to launch new capabilities and that are aimed at optimizing the opportunities for all parties at the table. We'll continue to use our data insights to open avenues of new growth for our merchants and developed attractive product programs for our consumers.
As part of our merger with FinServ, the company received $50,000,000 in incremental capital. We plan to use this capital to invest in initiatives that will expand our moat and accelerate our growth. For 2021, we have earmarked $10,000,000 for this investment. Related to this investment, we have begun the process of expanding our sales, marketing and technology teams with strategic resources and targeted new talent hires. We are also testing new programs and offers that we believe will accelerate our merchant pull through rate and increase consumer and merchant loyalty.
These include Improving our commercial offerings, so that we make an integration with Catapult Emergent's top priority and speed up access to the Catapult program. Also, doubling down on our lifecycle marketing strategies to enhance our promotions, increase consumer loyalty and merchant sales. Lastly, we'll be investing in technology initiatives to expand our competitive advantage and continuously improve the consumer and merchant experience. These initiatives include integrations with additional e commerce platforms and lender waterfalls, new product functionality and expansion of our digital consumer experience. For example, we recently added the Salesforce Commerce Cloud to our roster of integrations, another e commerce point of sale platform that will provide a great opportunity for growth.
Now I will hand it off to Carissa to discuss our financials.
Thanks, Derek. Before I begin, let me echo Orlando's excitement about the future of Catapult and my appreciation for everyone's support over the past several months. Now turning to our results. For the Q1, total revenue was $80,600,000 an increase of 88% year over year versus $42,900,000 in Q1 of 2020. Our revenue growth was driven by continued strong lease payment performance and a 71% increase in volume as gross originations otherwise referred to in the industry as GMV or gross merchandise value were $63,700,000 up from $37,200,000 in Q1 2020.
Starting in 2021 and going forward, net originations are continuously revised over subsequent periods due to merchandise returns and have greater seasonal fluctuations. Also, reporting gross originations is in line and consistent with how our public peers report volume. Gross originations are defined as the retail price The merchandise associated with lease purchase agreements entered into during the period through the Catapult platform. Gross originations do not represent revenue earned. However, we believe this is a useful operating metric for both the company and investors to use in assessing the volume of transactions that take place on our platform.
Gross originations of $63,700,000 for the quarter were in line with our expectations and follow the traditional retailer Seasonality in which Q1 is historically the lowest volume quarter of the year and Q4 is the highest driven by holiday shopping. Gross profit was $27,800,000 for Q1 2021 and increased 78.4% year over year. Q121 gross margin of 34.4 percent declined 190 basis points, primarily due to a slight acceleration in our property held for lease depreciation We continuously reevaluate lease depreciation curves every quarter and have accelerated them slightly in Q1 2021 to account for increased consumer buyout trends attributed to a combination of inputs. Total operating expenses were $13,300,000 in Q1 2021, up 51% compared to $8,800,000 in the prior year period. A breakdown of these expenses are as follows: Servicing costs, which represent our call center operations for customer service and collections were $1,100,000 in Q1 2021, up only 16% versus Q1 2020 despite revenue increasing 88%.
This is a testament to the scalability of our business and the ongoing digital transformation of our call center, continuously improving how we communicate with and service our consumers. Underwriting fees were $467,000 in Q1 2021, down from $479,000 in Q1 2020 despite volume being up. This is the result of our ability to continue to favorably renegotiate third party costs as we scale the business. Professional and consulting fees were $1,500,000 in Q1 2021, up significantly from Q1 2020, primarily due to transaction costs directly associated with the FinServ merger, which totaled $676,000 for the period. As a reminder, these costs are one time in nature and are not expected to reoccur.
Technology and data analytics Expense was $1,700,000 in Q1 2021, decreasing 6% year over year from $1,800,000 in 2020. This was due to a greater proportion of software development activities qualifying for capitalization in 2021 as we continue to enhance our product capabilities. Bad debt expense was $4,900,000 for Q1 2021 compared to $3,400,000 in Q1 2020, an increase of 44%. Bad debt expense primarily consists of provisions for uncollectible accounts receivable, net of recoveries. This increase was primarily driven by the proportional increase in revenue over this period, which was offset by decreased charge off rates due to better underwriting and payment collection performance.
Bad debt expense as a percentage of total revenue decreased to 6.1% for Q1 2021 compared to 7.9% in Q1 2020. General and administrative expense was $3,600,000 in Q1 2021 compared to $1,900,000 in Q1 2020. This increase is related to added headcount to support the growth trajectory of the company. General and administrative expenses as a percentage of Total revenue were flat at 4.5 percent for both Q1 2021 and Q1 2020 due to the company achieving scale. Interest expense and other fees was $4,100,000 for Q1 2021, up 39% compared to $3,000,000 in Q1 2020.
This was primarily due to an increase in total outstanding principal balance on our debt during Q1 2021, which is the result of increased origination volume as well as closing a $50,000,000 term note in December 2020. Interest expense and other fees as a percentage of total revenue decreased to 5.1% the 3 months ended March 31, 2021 compared to 7% in 2020. This reduction was primarily driven by the lower interest rates that we were able to on our debt facilities in the second half of twenty twenty. Provision for income taxes was $1,800,000 in Q1 2020 compared to $79,000 in Q1 2020. This increase was primarily due to saving of taxes on the company's estimated taxable income for the year ending December 31, 2021.
Taxable income is expected to be generated in certain states where accelerated federal tax depreciation is disallowed. The primary driver of provision of Income taxes for Q1 2021 was the State of California, where net operating loss carry forwards have been temporarily suspended for companies generating over $1,000 of taxable income. Our GAAP net income for the Q1 was $8,100,000 an increase of 120% from $3,700,000 in the Q1 of 2020. Turning to our other non GAAP metrics. Adjusted EBITDA for the Q1 of 2021 was $14,700,000 representing 122 percent increase over Q1 2020.
Adjusted EBITDA margin was 18.2%, an increase of 280 basis compared to 15.4 percent in the Q1 of 2020. Adjusted EBITDA is defined as net income before interest expense, income tax expense, Depreciation and amortization expense, stock based compensation expense, changes in warrant liability valuation, one time transaction costs and investor related matter costs, provisionbenefit for impairment and employee recruiting costs. Adjusted net income for Q1 2021 was $9,300,000 up from $3,800,000 in the Q1 of 2020. Adjusted net income is defined as net income before Stock based compensation expense, changes in warrant liability valuation, one time transaction costs and investor related matter costs and employee recruiting costs. Moving to the balance sheet and liquidity at March 31, 2021, we had $67,800,000 in available cash and positive net cash provided by operating activities of $7,300,000 Our total debt outstanding net of debt issuance costs and warrants was $105,900,000 Our cash balance in Q2 2021 will be increased by an incremental $50,000,000 cash infusion as part of the FinServ merger, bringing our current cash balance to approximately $100,000,000 which enhances our financial flexibility and capital structure.
Looking ahead to Q2 results, while we don't plan to formally issue quarterly guidance on a regular basis as a public company, we do anticipate there will be some noise in the numbers as The FinServ transaction that we just completed and also the unique period that we are comping to from last year. Dusty, we want to give you some color on how we believe the Q2 is shaping up. First, as it relates to the transaction, the completion of the merger last week triggered the Investing of stock options and RSUs plus transaction related bonuses for employees that will be recognized in Q2 in general and administrative expense. In total, we are estimating a one time charge of $12,000,000 that will impact GAAP net income, but will be added back to our non GAAP metrics of adjusted net income and adjusted EBITDA. In relation to our business KPIs, Q2 2020 was a very unique period.
A year ago, the nation for the most part was under stay at home orders, Many brick and mortar retail stores were closed and the government was providing assistance via the CARES Act stimulus checks. The combination of these unique circumstances in 2020 led to a surge in online transactions at our merchants and ultimately our gross originations. As a result, Q2 2020 resulted in the highest gross originations quarter for last year and did not follow the traditional retailer seasonality that we typically see. In 2021, we anticipate a more normalized retail calendar when it comes to volume And as a result, we are expecting lower gross originations year over year for Q2 2021. Also in Q2 2021, we started deploying Investment capital, marketing, sales and technology initiatives was reduced adjusted EBITDA in Q2 2021 as previously communicated in our April Analyst Day presentation.
We first introduced annual guidance for 2021 in April this year. Given the data we have today, we continue to believe that this guidance is reasonable and appropriate, and We plan to provide a more detailed update in our Q2 earnings release. To reiterate, the guidance is to achieve originations of $375,000,000 to $425,000,000 Revenue of $425,000,000 to $475,000,000 and adjusted EBITDA of $50,000,000 to $60,000,000 And as we have said previously, we anticipate the majority of our growth to be concentrated in the second half of the year with a heavy weighting to Q4 2021. Thank you very much. And I'll pass it back to Orlando for final comments.
Thanks, Carissa. To wrap up, I'll reiterate what I said at the beginning of this call. Though some volatility this year is unavoidable as the world begins to transition to a post pandemic new normal, we are all focused on a much bigger future and are convinced That our market leading position, our strategic investments and our long term focus will equate to a continued strong growth and improving profitability for many years to come. Derek, Carissa and I will be happy to take your questions. Operator, please go ahead.
Please stand by while we compile the Q and A roster. Our first question comes from the line of Vincent Caintic from Stephens, you may begin.
Hey, thanks for taking my question and good morning, guys. Good morning. So first question, just On maybe a follow-up on the commentary for the Q2. So Q1, great results and it seems to have been strong for The majority of the lease to own players and with that strength, I guess there was we saw significant Help from government stimulus, tax refunds and so forth. And so I'm wondering when you're thinking about, the rest of 2020, does the expiration of those Stimulus tax refunds and so on, have an effect on your model or how you're thinking?
Yes. Thanks for the question, Vincent. Nice to see you or talk to you again, I guess. We don't think that the stimulus Changes are going to affect our year. The consumer is obviously really strong right now and they Have been pretty resilient, thanks to the government stimulus as well as obviously unemployment is dropping and people are going back to work.
We don't think there's going to be any effect. And as you remember, during recessionary times, we actually performed pretty well. And we've seen that obviously happen, but we don't really think there's going to be any impact. But we're going to monitor things for the rest of the year and see how things play
Okay, great. Thank you. Second question. So you highlighted your Various partnerships. And I was wondering if you could talk about how we should think about the lift in your originations from your partnerships.
You I love it, Magenta and Shopify and Affirm. So like for example, if we think Shopify does over $100,000,000,000 of merchandise volume annually and Affirm, I think, is on track to do $8,000,000,000 this year. When you think about kind of what your partners are doing, how much How should we think about how much of that could flow to you, like if you could size maybe the opportunity for Catapult? Thank you.
Hi, Vincent. This is Derek. I'll take that question. So generally, we don't expect to give the granular level of detail in terms of merchant base or Our growth projections by platform or partner. However, we are continuing to develop our strategy and collaboration with various partners and we're seeing really strong numbers.
The Waterball solution combined with our direct offerings and partnerships is really resonating with online retailers on the whole. I would also just add that Partners like Affirm, Magento and others, we're just getting started and it's really exciting to see the volume and the interest as the word gets out, the Catapult And so we're just really optimistic. We'll be continuing to give more flavor as to what that means for us. But you're also going to see us adding new partners in the future.
Yes. I think if I can add Vincent, I would say we're just scratching the surface.
Okay, great. Thank you. I'll be back in the queue. Thank you.
Thanks Vincent.
Our next question will come from the line of Ramsey El Assal from Barclays. You may begin.
Hi. Thanks for taking my question this morning. I wanted to ask you to give us a little more color on the drivers of the full year origination guide, which I think is coming in around like 100 Percent growth at the midpoint. 1Q originations, I think, were 71%. I think comps get a little bit easier, if I'm not mistaken, in the back half.
But you also have line of sight to new merchants on boarding or merchant sign last year annualizing. Just trying to get a little more color behind the acceleration there versus the result this
quarter? Sure. Hi, Ramsey, this is Carissa. Yes, in terms of The growth, you nailed it on the head. We saw a pretty strong growth in Q1.
Q2, we as I mentioned on the call, we're going to Anticipate year over year decline in originations just because last year Q2 was unseasonably high for us. But in the second half, the comps Get easier and that's where our growth is really concentrated. So as we onboard merchants now and through in the first half of the year, we anticipate The new merchants driving volume next year and next in the second half of the year. And then also holiday season, we saw a very flat holiday season last year, which was Definitely out of the ordinary for us. So we're really excited about the holiday season returning.
And as we onboard new merchants and then see that seasonal uptick that we normally do, that's we're seeing the growth.
Okay. And then separately, are you seeing any impact on Sales from some of the delayed shipping, delayed logistics times that we've been reading about and some of us experiencing when we try to buy a couch Is that impacting your business at all
or? Hi, Ramsey. This is Derek. I'll take that one. So the answer is yes.
We definitely have seen Some delays that has been impacting the customer experience and leading to higher cancellation rates or abandonment. That said, we do believe that our approach to stay in communication with these customers and partnering well with our retailers, means that we'll be able to retain that consumer relationship And possibly get that transaction later once things are more widely available. So we have seen some fluctuations, Right. We continue to monitor and it looks like things have been done.
Okay. Last one for me is I just wanted to ask for an update on the Wayfair concentration. I think I recall as I recall, the expectation for that was for Decline quite a bit in 2021. I know the world is obviously atypical right now. I'm just curious about how that's trending.
Is that kind of expectation still on track?
Yes. We saw a decline in the Q1, as far as the concentration and that's what we expected. And so, while we continue to grow along with them, well, it's really about the new retailers and The new pipeline that we have coming into the second half of the year.
I'll put an additional point on that. So at the end of the year, we were in the mid 70s of concentration, we've dropped down to the mid-60s through the end of the Q1 and that isn't because of a decrease And expectations on the Wayfair side, that's more just seeing the growth that we've had from the other areas of our business, which we're really excited about.
Okay, terrific. Thanks for taking my questions.
Great. Thanks, Ramsey.
Thank you. Our next question comes from the line of Anthony Chukumba from Loop Capital Markets. You may begin.
Good morning and thanks for taking my question. I guess, two questions. First question, I don't know if you want to give the exact number, But maybe even just sort of directionally with the year over year change in your write offs, like the way you I guess the way you sort of calculate that or think about that.
You would
love to get a little bit more color on that or like I said, if not the actual number, just what the change or directing what the change was year over year?
Yes. When you're speaking of write offs, is that to my comment of why gross profit margin went down slightly?
No, I'm just talking about like write offs, right? Like somebody leases something from you, but then they disappear, right? And you have to write it off.
Oh, yes, yes. Yes, absolutely. Just wanted to confirm that. So from a credit perspective and a write off perspective, we're really seeing steady state write offs. Prior to the pandemic and COVID hitting, we had seen very consistent loss rates and write offs for the past The 12 months prior.
So we're at the same levels. We're not seeing any changes materially one way or the other. Okay.
And then, so second question, you had a question earlier about Federal stimulus and the fact that the checks are probably pretty much spent at this point. But we do have this expanded child tax credit That kicks in July. And I guess I just love how you're sort of thinking about that in the context of your full year guidance. Thank you.
Yes, I mean, I think that's something that we'll definitely be monitoring. When stimulus does hit, we do see Well, once a missed hit, we did see some increase in volume and also in terms of pay through. We also will be checking the trends or closely monitoring the trends on early buybacks because that's something once our consumers receive Stimulus checks or tax refund checks, we do see that they go and proactively buy out their lease. So I think there'll be lots of dynamics at play. So We'll see how it turns out and we've gotten during that closely throughout the summer.
Thank you.
Thank you, Anthony.
And the next question comes from the line of Kyle Joseph from Jefferies. You may begin.
Hey, good morning. Congratulations on getting the transaction done and thanks for having me on.
Thanks, Scott.
Yes, quick follow-up there. We saw the last round of stimulus in March. How long does it take for 90 day buyout activity to Kind of normalize after a round of stimulus given we've seen kind of 3 rounds at this point?
Kyle, I'll take that. So the quick answer is it is roughly in the 90 to 120 days that we really see things season out. That said, part of our approach is that we're always looking to communicate with consumers so that they I can understand how they can get the best deal. And after these stimulus moments, we've seen a variety of different responses, right? So early in the stimulus Ara, we did see some increase in our early purchase option activity and some of the other Events that happened, for example, later last year, we didn't see as much activity.
It looked more just like a typical tax season. So typically you see it within 3 months or so. And then but the Behavior of consumers has been a little bit dynamic as we mentioned on the call.
Got it. Thank you. And then just one follow-up for me. As we think about your pipeline of retail partners, obviously, you guys have a leg up on the e commerce side of the business. Longer term, Would you imagine your business stays very focused on e comm, but with a balance of brick and mortar?
And then also from a vertical perspective, talk about Potential for vertical diversification or is there a big enough white space Your existing verticals, but just some pipeline color would be helpful. Thanks.
Sure. I'll take that. We are in the pipeline, we see a number of omni channel Retailers, which I think we have not only the experience and the knowledge because this business originally Kind of floated towards brick and mortar a little bit more than it did e commerce and we moved it to e commerce over the last several years. Yes, we want a player who is doing both, because we can think we think we can add value from a marketing perspective and capturing this Consumer that is shopping online and might not be visiting the store, but maybe wants to fulfill in the store. So we're talking to a few retailers now that have that and Building that capability, I think, is relatively easy.
One of our sales leaders, for example, does have That background, he ran a field sales team. So I think, that part is relatively easy. It just depends on the scale of the retailer. So we're not afraid of it, but I think we've got Technology ideas around driving a better experience at the store for the consumer, so that the consumer is in control. And then on the vertical side?
Yes, I'll take that Orlando. So on the vertical side, Kyle, it's a good question. We Tend to stay really close to those essential items. We believe that that's the sweet spot, for our lease purchase product is We're focusing on those essential items like furniture appliances, auto and core electronics. That also helps us to certainly Access the growth opportunities that are happening in this space, but we're constantly evaluating new opportunities and We're seeing where consumer demand takes us.
And some of them are really interesting and we'll be excited to talk more. If you look at the new resellers we brought on, You'll see increasing interest in areas like gaming and other electronic capabilities that we're seeing really great performance out of and we're excited
Got it. Very helpful. Thanks for answering my questions.
Thanks, Tom. Talk to you soon.
We have a follow-up from Vincent Caintic from Stephens. You may begin.
Hey, thanks for taking my follow-up. So, just, I guess, a broader question, but, when you think about your Pipeline, maybe if you could talk about how the sales cycle typically works when you're talking to a merchant. You've had tremendous origination growth and that looks like it's going to continue, especially with your online focus. But I guess when you engage with a retailer or try to engage with the retailer. How does the process typically work?
What are they looking for and what are they sort of the friction points? And One of the things we've heard from some of the for some of your competitors, so Catapult has done really well on the e com and the online side. Seems like the other guys are trying to add ecom and online capabilities as well and trying to reach parity. So maybe When you're engaging a retailer, is the competitive pressure, are they searching around for other competitors? Just sort of wondering if you could talk about how the sales cycle and how that process works?
Thank you.
Thanks, Vincent. Let me break down that question into a few different areas. So on a competitive side, I'll start there, which is just that this market is huge and really untapped. So we're not surprised at all to see competitive interest in the space. We've been developing our solution and we continue to enhance our strategic moat, constantly, number 1, to deliver more value for the retailer and for the consumer.
And we're not going to stop doing that. We want to make it we want to be the easiest to work with on both sides of it and have a really compelling solution. So we have things underway that we're really excited about That are going to really differentiate continue to be differentiated. In terms of how the sales cycle works, it depends. And this is where I think we also See a lot of encouraging signs.
One is on the SMB side, which is a huge part of our business is that we've made it extremely easy for a retailer to say yes. And to be able to onboard a retailer very, very simply with a waterfall solution, a direct solution or both, We think that's really powerful and it delivers really the most value that a retailer can see that match with our existing base and our marketing approach. On the mid sized to large side, the friction is greater only because of prioritization in our IT side. As you go up the scale, you see retailers that have custom solutions or proprietary web card Environments or omnichannel POS solutions and really a lot of it is about prioritization. What's really exciting though overall Is that due to the pandemic and some of the testimonials and more information that we've been able to share, Retailers are really getting it, that this is an untapped market, that the non prime consumer base is a viable and attractive market segment for them.
And we're getting really good signs that the interest is increasing very quickly.
Okay, great. That's very helpful. Thank you.
Thanks, Vincent.
Our next question will come from the line of Anthony Chukumba from Loop Capital Markets. You may begin.
Hi. Thanks for allowing me to ask a second question. So you mentioned your pipeline, you have a number of omni channel Retailers, I guess my question there, I guess the way I've always understood your sort of Special sauce is that you only really service e commerce retailers and obviously there's a lot of sales and merchant support that's involved with Servicing brick and mortar retailers. So should we expect that if you're going to be going after omni channel retails, that's going to be Investments that are going to be necessary to service those retailers that will bring down your profitability? Thanks.
Thanks. Anthony, that's a good question. And I would point you to our Analyst Day deck where we talked about some of the new investments that we're making. But First, let me just talk a little bit more about our strategic approach. And Orlando mentioned that we're digital, mobile And e commerce first.
And like you said, we focus on those omnichannel retailers that are Actively looking to grow their e commerce penetration and their e commerce sales and or already have a really nice e Commerce business, because you're right, that is our number one area of strategic advantages that we can deliver value on. And increasingly the interest in trying to make sure that they tap those markets is there. However, right, Customers are multi channel. They shop in different places. And so retailers have asked us that have an in store experience, hey, can you do in store as well?
And the answer is yes. But we wouldn't do it the same way as you've seen in other areas, right? We're definitely oriented to using digital means to communicate with consumer to make the checkout seamless. And so yes, if We will be making investments that should make that digital experience smooth and have a lighter touch in terms of the financial impact of Doing in store experiences, but there will be investments that we have tied to it.
Got it. And then just one follow-up Question. So as I was looking through your press release and your calculation of adjusted EBITDA, I see you're backing out employee recruiting costs. Now, I mean, these numbers are pretty small, so I'm not terribly concerned about them, but I've just never seen that. So I guess, why would you be adjusting I would just think that that would be a cost of doing business, particularly for a growing company.
Yes, I'll take that. It's really these were just one time costs that we were isolating for some of the uplift to become a public company. So we don't use recruiting firms Normally, we're actually really great at recruiting talent on our own. But for some of these one time positions that we needed like a Chief Accounting Officer, etcetera, We did utilize recruiting firms because we wanted to get the best talent out there. But yes, historic going forward, Good call out.
We won't be adding those back on a regular cadence, but that's something we just wanted to isolate in the interim just because we were hiring some big Roles that we're using recruiting firms
for. That makes sense. Thanks for the clarification.
Sure. No problem.
And I'm not showing any further questions in the queue. I'd like to turn the call back over to the speakers for any closing remarks.
Well, thanks everyone for your time today. Hopefully, we're able to answer your questions and look forward to continuing our conversations with many of the investors over the next couple of days. We really appreciate Time and appreciate the support that you've given us through this journey, into being a public company and great things