Q4 2021 FlexShopper Inc Earnings Call

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Greetings and welcome to the flex shopper fourth quarter and fiscal year 2021 earnings call.

At this time all participants are in a listen only mode.

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. Please.

Please note that this conference is being recorded.

I will now turn the conference over to our host Jeremy Hellman of the equity group. Thank you you may begin.

Thank you operator, I would like to remind everyone that we've posted an updated investor presentation within the IR section of the company website Www Dot <unk> dot com and encourage everyone to review the forward looking statement on page two of the presentation that I would like to turn the call over to flex shopper CEO Rich House. Please go ahead rich.

Thank you Jeremy and welcome everyone to our earnings call joining.

Joining me today is our CFO Russ heiser, if you've done this before as always Russ will be expanding on the key financial aspects of our quarterly results and I'll I'll cover some operational highlights.

Our fourth quarter was solid with growth in net revenue and a nice increase in bottom line profitability.

Importantly, we are happy.

No.

Note that we increase the year over year EBIT by over 30%.

And as we have a better view of how the COVID-19 .

And they make is affecting customers. We believe we can grow at a similar or higher rate.

2022.

Throughout the pandemic, our direct to consumer like shopper Dot Com website has proven to be a key asset and a drive for our lease originations in.

In the first half of the year stimulus programs put subprime consumers and a stronger liquidity position.

And apparently dampened demand across the rent to own industry based on the earning reports of our peers.

We believe that dynamic has lessened considerably in the fourth quarter as Covid, driven COVID-19 driven stimulus programs wound down.

Our data suggests recent payment activity, especially early payoffs continue.

Continued to revert to historical patterns.

Yes.

Our retail partner.

Ecosystem accounted for about 34% of our leases this year.

And as COVID-19 surge.

Occurred throughout the winter, we receded, we've seen a notable pick up in leasing activity in this channel.

Additionally, as noted in our earnings release yesterday, we expect to see our retail footprint expand during the first half of this year.

Through a mix of new pilot programs in full rollout.

These rollouts have a substantial amount of investment in self support. However, we believe that these are great investments.

I'm going to turn the turn it over to Russ now to address specific items regarding our financial performance.

I'll I'll come back later to wrap up.

Thanks Rich.

As a reminder, the investor deck posted on our website together with our press release and 10-K provide significant insight into our fourth quarter and full year operating performance. So I'll cover just a few of the highlights.

During the fourth quarter, our revenues and fees were up 10.5%, reaching $31 1 million.

However, our fourth quarter lease origination dollars were down 18% versus the prior year.

However, I want to point out when we include.

A loan product that we've launched over all originations were down less than 10%.

The fourth quarter gross profit increased 10, 3% to $12 2 million versus the prior fourth quarter.

EBITDA decreased slightly to 2.0 million versus $2 6 million during the fourth quarter.

But that was primarily driven by marketing increasing by $1 3 million in 'twenty, one versus the prior year quarter for.

For the full year, our revenue and fees were up 22, 9% $225 4 million or gross profit expanded 38% at $46 2 million from $35 4 million.

Full year EBITDA expanded 31% to.

The $11 4 million versus $8 7 million.

As a follow up to some of Richard's comments the company will.

Achieve next year's results by significant spending.

In the first half of the year in order to support these new retail rollouts, but those investments will enable us to deliver EBITDA growth for the full year of 'twenty. Two is at least equivalent to the 31% achieved this past year.

In order to support that growth, we've increased our capital commitment from our senior lending facility by almost 60% to 82.5 million I'll now pass the call back over to rich.

Thanks Raj.

Overall, we had a solid quarter and a year and fare well despite the headwinds we face in particular I'm happy with the level of the bottom line profitability and EBITDA growth were able to report.

Looking ahead to the start of 2022 are conditions of our industry appear to begin normalizing.

And that bodes well for our growth outlook and the point and four for 'twenty two 2022 .

Before opening the call to your questions I want to close with some comments on how we think our business is differentiated from our peers.

And the rent to own or lease to own our industry.

First and foremost is our flex shopper dot com website.

Our peers do not seem to have a consumer facing experience as robust as ours.

Or would the San Francis operational underwriting history.

Operating our own website like this.

Means we are.

100% of charge for integration originations in this space.

And we're not dependent on anyone else's traffic.

While stimulus programs reduce demand for alternative financing across the industry.

We were nevertheless, able to grow and importantly did so while maintaining our underwriting standards.

And as all of you have heard me say repeatedly over the last several quarters.

Proper underwriting is paramount in our business and we will not sacrifice that to chase consumers that we.

We ultimately expect will be become delinquent.

While our customer facing website is central to what we are and what we do we've obviously made the expansion of our retail partner channel.

It's an important channel are important part of what we do as well.

As always we continue to emphasize our core priorities, which are underwriting.

Liquidity and distribution in good times and bad those elements might enable us to maximize our returns on shareholder capital.

As Russ was suggesting some of our retail partners and potential retail partners have wanted us to include lending as well as leasing does.

So the product mix for the their point of sale experience.

Over the past year, we've been testing unsecured term loans and analyzing the credit risk.

Fortunately, our chief operating Officer, John Davis.

And I have a long history of making these types of unsecured loans.

And we've done the testing and the data supports this strategy is going to work and wish you. The stand the strategy, which we believe will add to our growth moving forward in 'twenty two.

2022.

That concludes our prepared remarks.

We're happy to take any questions.

Thank you.

At this time well conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate that your line is in the question queue.

You May press the Star key followed by the number two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Again to ask a question press star one on your telephone keypad.

Our first question comes from Scott Buck with H C. Wainwright. Please state your question.

Hi, Richard Thank.

Thank you for taking my questions are first rich I was hoping maybe you could give us just a little bit more color on this new lending product.

I know you've called the example of a tire realignments, there will rollout realignments and in the press release.

Where else could this be used what size loans are we talking about didn't end you know maybe some of the other and mechanics of this lending product would be great.

Yeah, I think that.

We're comfortable going up to with 52 week, you know lending, where we're comfortable going up to $2500, but I think the average is going to be about $1200.

And that that would be my guess.

But they were unsecured loans right, but we.

That's what we're looking at and it's.

Issued through.

Our National Bank, you know Ora or Utah Bank and so we have a we can do it across the nation. So.

And that's that's one of our growth channels that we have that we are very comfortable with so.

Okay I appreciate that.

Then on the 500, a retail store rollout in the brick and mortar side.

Were those all conversations that were taking place pre COVID-19 or you know at the beginning of Covid or how many of those are you know more recent.

The conversations that have turned to pilot program, you know stuff over the last six or nine months.

It's.

More recently is nearing Covid I guess, we're still in Covid I guess, but.

We.

Really began rolling it out and January .

So it's something that we have two additional partners.

And two additional retail partners and that's what we're growing right now but to your point I mean, there's a lot of these were conversations that you know start and stop is as Covid sort of you know surged and stepped back.

And are they.

Conversations did start occurring a longer ago than you would expect given that we're just you know having opportunity to rollout now and this is all just due to COVID-19 slow up et cetera.

Okay. That's helpful. And then Russ are you know marketing spend was up meaningfully in the quarter.

But originations were you know down I'm, just trying to understand maybe with them you know what's the marketing effort look like and can we get hung up on you know one quarter of originations or are those marketing dollars going to be you know driving revenue over the first and second quarter of 'twenty two as well.

Hi.

A lot of these a lot of whats falling into our marketing message isn't always as.

As we do some of these rollouts isn't always the direct marketing expense that you're used to seeing in the past and so some of these dollars are going out into sales support staff are educating.

The stores getting materials for the stores all essentially a pre loading our originations if you would for a the next a couple.

Couple of quarters, Yeah, I think that's it.

Something to note is we as we have made these agreements to grow the rollout of these 500 stores.

We've had to hire people.

And salesman payrolls et cetera.

And some online marketing to grow these stores.

So it'll it'll suppress Q.

Q1, but which we believe.

It will substantially increase.

You know our EBITDA for.

For the rest of the year.

Okay got you that makes sense and then last one for me.

Average size of an origination was up nicely year over year is that stemming from you know kind of a return to some of the brick and mortar or what's driving that increase and how much more room do we have to take that higher.

Hum.

More of it.

It's more of an optimization exercise were using.

Online.

They figure out how to entice customers you know to.

To get the highest product.

Our highest priced product.

There is some.

Some retail element to it as well.

But you know are theirs.

That's it.

I always want that effort to happen because right you're always want the highest average order value can have so.

But there's no there's no magic to it it's just what we've been doing.

Okay I appreciate all.

All the extra color guys. Thanks, a lot.

Yep.

Thank you and just a reminder to ask a question press star one on your telephone keypad.

Pause for a moment, while we poll for questions. Thank you.

Thank you and we do have another question from the line of Scott Buck with H C. Wainwright. Please go ahead.

Hey, sorry, guys I figured I'd throw another one in there just you know generally right and rich if you could speak about credit trends, what you're seeing and maybe what your expectations are for Duane. Thank you. Yeah, we talk about normalized volumes in demand, but you know our credit normalizing as well.

We generally have not seen any total deterioration in credit.

What we have seen is.

In the past year, some of our better customers may have been picked off a little bit by.

You know the buy now pay later or credit card companies.

Which is fine.

But we're seeing that normalize now so.

That's why.

We feel good about the credit trends, but we're we're very disciplined about that right. So.

We don't we haven't seen any deterioration in credit my score ranges.

Rich is there an opportunity for you guys to get more aggressive there.

There is.

There isn't it airs on the opportunity to do that.

And we're looking at it and that's one of the things we're exploring them as we look at.

The lending and leasing opportunities.

Alright, Thanks, a lot guys I appreciate it.

There are no further questions at this time I'll turn the floor back to management for closing remarks.

I don't think they have any closing remarks other than a whether we were going to continue to grow we feel good about our growth. This year and we'll look forward to talking to you guys next quarter.

Thank you. This concludes today's conference all parties may disconnect have a great day.