Q2 2021 FlexShopper Inc Earnings Call

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Greetings and welcome to the Flex Shopper L. L. P second quarter 2021 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Jeremy Hellman of the equity group. Thank you Jeremy you may begin.

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Jeremy or either on there.

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Oh, yes, I'm sorry, Jeremy.

It just prior to the main call. We just did the introduction either just having it all C L.

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We're live.

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Thank you operator, I'd like to remind everyone that we've posted an updated investor presentation within the IR section of the company website Www Dot flex shopper dot com and encourage everyone to review the forward looking statement on page 2 of the presentation.

That I would like to turn the call over to flesh out per CEO Rich House. Please go ahead rich.

Thank you Jeremy and welcome everyone to our earnings call. Joining me today is our CFO Russ heiser as always Russ will be expanding on the key financial aspects of our quarterly results and I'll cover our operational highlights.

Our second quarter was 1 of steady growth in both our distribution channels. Overall, we had solid origination growth and also made solid progress in expanding our retail partner ecosystem.

Starting with our direct to consumer flex shopper Dot Com website, we continued to invest in digital marketing programs as those are yielding customers at or below the necessary customer acquisition cost.

To achieve our return on capital hurdles.

As we and many of our peers have noted.

Government stimulus programs have had and continue to have an impact on our customers.

Historically subprime shoppers behave differently leering tax return season, when many received a relatively sizable amount of cash relative to their typical budget.

This often in the past resulted in a bump in early lease payoffs and same as cash transactions.

Pandemic driven stimulus programs had a similar pack impact and we are paying close attention to how the new child tax credit payments affect our customers and their shopping behavior.

Overall, we see 2 early takeaways.

First there does appear to be some dampening of demand if customers choose to use those payments to purchase merchandise outright.

They may have otherwise previously paid for over a longer period of time.

Secondly, and favorably we are all seeing also seeing some reduction in delinquencies.

Turning to our retail relationships. We are pleased to report that our pilot program with a national diversified merchandise seller is set to more than double the number of storefronts prior to the holiday season.

We expect to add 1 state with our partner for that state accounts for an outsized portion of their stores in our view. This is a strong testament to the value we bring to them.

We also kicked off a 4 state pilot with another national diversified retailer.

And expect to run that test through the end of the year.

In both cases, the timing of our Rollouts has been slightly impacted due to some degree by the recent COVID-19 resurgence rates at this time, we remain cautiously optimistic that states will not be returning to the same shelter in place restrictions we saw in 2020.

I'm now going to turn the call over to Russ to address specific items regarding our financial performance and corporate liquidity. Thanks rich.

To start with a reminder, that we have posted an updated investor deck on our website and that deck, we have a number of data points, including new and repeat lease volume by origination channel that are useful and monitoring outperformance the.

In addition, we have broken out a number of operating and financial metrics by year.

I also want to remind everyone about our relatively new data point free marketing EBITDA, which provides additional insight into how our business is performing.

Marketing expense as our primary growth lever and largest variable cost and varies quite a bit during the year on responsive of seasonal consumer activity along with external factors. Therefore, moving it from the EBITDA calculation as informative when looking at the business over time, especially as marketing expense would be expected to continue to increase.

The investor deck together with our press release, and 10-Q provide significant insight into our second quarter operating performance.

During the second quarter, our portfolio originations were up 29, 9% that was a function of both the lease count increasing by 13, 5% year over year, and average order value increasing to $516 from $452 or 14%.

As I've mentioned previously current period originations are highly predictive of when it comes to forecasting revenues over the ensuing year since we recognized the lease revenue over the term of the lease.

As a reminder, the lease merchandise figure represents merchandise that has been leased by consumers net of accumulated depreciation and any impairments. This is a good proxy of the size of the performing the performing lease portfolio and as such is also highly correlated with forward 12 months revenue and gross profit.

Our net lease merchandise balance as of the end of the second quarter was $37.6 million, which is up 44, 3% from $26.1 million in the prior year.

Second quarter gross profit margin was 36% compared to 30% in the prior year.

There are a number of items that play into that improvement.