Q4 2023 FlexShopper Inc Earnings Call
Greetings welcome to the flex shoppers fourth quarter financial results Conference call. At this time all participants are in a listen only mode. A 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. Please note this conference.
Is being recorded I will now turn the conference over to Carlos Sanchez Investor Relations. Thank you you may begin.
Carlos Sanchez: Thank you and good morning, welcome to flex shoppers fourth quarter 'twenty to 'twenty three financial results conference call.
With me today are Russ Heiser, our Chief Executive Officer, and John Davis, Our Chief operating Officer.
Carlos Sanchez: We issued earnings release yesterday, which we'll be referencing during today's call our earnings release and SEC filings can be found our investor Relations section of our website, we will be available for Q&A. Following today's prepared remarks.
Carlos Sanchez: Before we begin I would like to remind everyone that this call will contain forward looking statements regarding future events and our financial performance, including statements regarding our market opportunity the impact of our growth initiatives and future financial performance.
Carlos Sanchez: These should be.
Carlos Sanchez: Considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports, including our annual report 10-K for the year ending December 31st 2023.
Carlos Sanchez: These statements reflect management's current beliefs assumptions and expectations and are subject to a number of factors that may cause them to 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.
Carlos Sanchez: As a result of any new information future events or otherwise during today's discussion of our financial performance. We will provide certain financial information that contains non-GAAP financial measures under SEC rules. These include measures such as EBITDA net income and adjusted net income.
Carlos Sanchez: These non-GAAP financial measures should not be considered replacements and should be read together with our GAAP results.
Carlos Sanchez: Reconciliation to these GAAP measurements and certain additional information are also included in today's earning release, which is also available on the investors section of our website.
Carlos Sanchez: This call is being recorded and a webcast will be available for replay on our Investor Relations section of our website.
Carlos Sanchez: I will now turn the call over to our C O Russ heiser.
Russheiser: Thank you Carlos and thanks to everyone joining us this morning.
Russheiser: We're excited to discuss our fourth quarter performance and provide some insights into the first quarter of 2024.
Russheiser: Overall, the fourth quarter continue the financial progress from prior periods during the fourth quarter of 2023 versus the fourth quarter of the prior year.
Total fundings were up 7% net lease and loan revenues were up 42%.
Russheiser: Gross profit was up over 300% and operating income was a positive $5 6 million compared with the operating income loss of $5 5 million.
Russheiser: And then moving onto 2023 full year results see a similar pattern.
Russheiser: Total fundings were up 8% versus the prior year at least in loan revenues were up 3% gross profit was up 47% and operating income was a positive $13 7 million compared with an operating income loss of $6 3 million in 2022.
Russheiser: Despite all these financial improvements the whole market in the fourth quarter.
Russheiser: The work going on behind the scenes as we mentioned on the last call. We are continuing to transition our flex shopper dot com business significantly.
Russheiser: What was traditionally an online lead generator for at least the one transactions is now transitioning into a retail platform with other payment options for consumers. In addition to flirt shoppers lease to own product there.
Russheiser: First quarter of 'twenty 'twenty four there'll be a new line on our income statement, reflecting revenue from goods sold on flicked shopper Dot com that were not funded by US since February we have been selling merchandise on our sites that was funded via a payment option that was not a flex shopper lease the average margin on the products was approximately 23%.
Russheiser: More importantly.
Russheiser: We are making more wholesale profit per day on flex shopper dot com and we're spending on daily marketing.
Russheiser: Our next steps are fourfold.
Russheiser: First we will continue to add additional payment options to flex shopper dot com. So that almost every visitor can find the payment option that fits their credit profile.
Russheiser: Whether it is the prime consumer looking for 12 months deferred interest offering or near prime customer looking for pricing lower than our traditional lease to own product as.
Russheiser: As we have mentioned previously on these calls we were monetizing less than 1% of unique visitors to our sites more payment options, let's just monetize the visitors that are already coming to select shopper dot com.
Second we will continue expanding the number of Skus on our site to provide our customers with a wider range of goods both from a price perspective and from a product selection perspective, we want to continue to fall the way no inventory drop ship model. It for our merchandising team is adding manufacturer distributor and shipping partners.
Russheiser: That broaden our reach into the higher margin appliance furniture and specialty markets that complement our traditionally strong electronics presence.
Russheiser: Third given that the margins on goods sold via other payment options or at least from flex shopper per day is greater than our daily marketing spend we are continually but prudently and cost effectively increasing our marketing spend this will allow us to grow not only the amount of goods sold on the site, but also the amount of goods leased from us on the site.
As I mentioned this venture only launched in mid February but we are excited about the runway in front of us.
Russheiser: Finally, we launched the first of what we expect will be numerous micro sites in early March focused on individual product verticals that will expand our reach and efficiently, adding new traffic to the flex shopper ecosystem.
Russheiser: Using generative AI. The goal is to quickly expand beyond the legacy flex shopper dot com marketplace experience to create streamlined sites for expediting item purchases and least fulfillment.
Russheiser: Our first was focused on gaming computers and console is just that as a core competency. The Microsoft sites launched this year will range from jewelry to furniture overtime represent all of the primary verticals for leasable goods.
Russheiser: Moving past the digital marketplace like shopper continues to rollout the lease offering into new locations.
Russheiser: At the end of 2023 we have expanded into an additional 720 units through today, the additional 500 and eating more playing through the middle of May.
Russheiser: And of course further opportunity lies in improving the in store leasing process with our current retailer partners.
Russheiser: Another long term partner, we're exploring how we can originate more leases together and are piloting an improved leasing and checkout process and a subset of locations. That's currently sustaining and over 200% improvement in leased through right.
Russheiser: After a bit more refinement in testing we plan on rolling out the improved process into approximately 1600 stores by the end of the summer.
Russheiser: Finally, before I hand off the call. It zero I want to mention a recent positive support from our lender last Wednesday, we closed on a new credit facility that increased the funding commitment from 110 million to 150 million pushed the maturity date to April 2027, and decreased our interest costs by 2% per year.
Now I'll hand, the call over to John Davis to dive into the Companys fourth quarter performance.
John Davis: Thanks Russ.
John Davis: We have discussed in previous quarters, we have been focused on improving asset quality rolling out our retail margin strategy on our flex her to shop for dot com marketplace and to grow the business I'm pleased on our progress on all these fronts.
John Davis: Black shopper adjusted EBITDA was $23 $2 million for 2023 versus my minus $536000 in 2020 two.
John Davis: It's almost a $24 million year over year improvement for Q4 of 2023, adjusted EBITDA was $8 $2 million versus a minus $4 million last year.
John Davis: Helping to drive this improvement in financial performance is our continued efforts on rolling out our retail revenue strategy and our focus on asset quality improvement over the year.
John Davis: Our merchandising team has been working on new relationships with wholesalers distributors and manufacturers over the past year to increase the number of products on offer and our online marketplace with higher retail margins. This margin when originated to reflect sharper at least agreement is recognized over the life of the lease.
John Davis: Our resulting financial benefit shows up on our P&L the cost of merchandise sold.
John Davis: Cost of merchandise sold as a percentage of lease revenue was 42, 8%.
John Davis: 2023 versus 47% in 2022.
John Davis: 39, 9% in Q4 of 'twenty three versus $44 seven.
John Davis: Per cent in Q4 2022, this was a $3 million benefit in Q4 of this year versus last year.
John Davis: As Rex Russ was mentioning earlier in Q1 of 2024, we launched a new initiative to offer alternative partner payment solution options on flex shopper Dot com.
John Davis: Rod and our reach to a wider set of customers both above and below our current credit segment served by the flip shop or at least.
John Davis: With our expanding retail margin on products offered online.
John Davis: Any additional sales from existing website traffic are immediately accretive.
John Davis: Our percentage of our current website traffic does not convert today due to the quiet applicants were non spender is looking for a better deal.
By offering a broader range of payment solutions, we expect to increase website.
John Davis: Sales, which will result in higher retail margins that is immediately recognized when received.
John Davis: For the first two months that we have been offering other payment options. We have sold an additional approximately $750000 on our marketplace.
John Davis: With a markup of over 20% on cost of goods sold.
There is significant opportunity to expand into higher product price ranges and new product categories as well as the opportunity to reinvest this retail margin into additional marketing to drive more traffic for our website, which will also have a halo effect on lease originations.
As we continue to look to improve conversion, we are increasing the adverse investment into generative AI content creation targeted response models that will identify the most relevant product and payment solutions for our customer and a wider selection of products that have a broader appeal to our potential customers.
John Davis: In regards to our efforts on asset quality, we have made significant strides on underwriting and front improvements over 2023.
John Davis: Full year lease bad debt as a percentage of lease revenue was 32, 2% for 2023 versus 37, 1% in 2022 for.
John Davis: For Q4, 2023, this was 39% versus 42% in Q4 of last year.
John Davis: This was a $4 $4 million benefit in Q4, this year versus last year.
John Davis: 30% year over year reduction in bad debt.
John Davis: Numerous new strategies have been deployed over the course of 2023 and this work is ongoing coming.
Coming out of higher price inflation in 2022.
John Davis: And our underwriting policy to control asset quality, which resulted in lower lease originations.
John Davis: However, I am pleased to report that Q4 lease originations increased year over year for the first time since Q2 of 2022, while keeping conservative underwriting standards in place.
John Davis: Lease revenue is spread out for up to 12 months over the life of the lease so there will be a lagged effect on lease revenue from these larger origination levels.
John Davis: Our risk and fraud modeling continues to evolve and improve with the use of online search and navigation patterns part contents and continuous testing of third party data sources, which are all combined into new machine learning driven models and strategies, which identify riskier customers on a real time basis.
John Davis: Our partnership point of sale lease channel also continues to experience growth.
John Davis: We have launched a new strategic partner in the tire space in Q1 of 'twenty 'twenty, four which is expected to significantly increase the storefront count offering <unk> shopper payment solutions and we continue to expand within our existing partner networks as they expand their various footprints.
John Davis: As of December 31, 2023, we saw a 51% year over year increase in storefronts.
John Davis: And our current rollout pipeline suggest an estimated growth of an additional approximately 50% this year.
John Davis: We're also expecting growth from other retailer websites that offer flex sharper leases via credit waterfall partnerships.
John Davis: Our goal is to provide a platform for sustainable and profitable growth.
John Davis: We have heavily invested in a strong leadership team a robust technology stack, making the use of latest the latest tools available to the marketplace.
John Davis: Continuous focus and investment on asset quality and fraud prevention.
John Davis: I am pleased with what flex shopper accomplished in 2023.
John Davis: We're poised to continue this momentum in 2024.
John Davis: I would like to also thank our team members, who have worked very hard over the past year to achieve these results.
None: With that let me turn the call back to the operator for Q&A.
None: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
None: A confirmation tone will indicate your line is in the question queue you.
None: You May press star two if he 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.
None: One moment, please while we poll for your questions.
Yeah.
Our first questions come from the line of Scott Buck with H C. Wainwright. Please proceed with your questions.
Scott Christian Buck: Hi, Good morning, guys. Thanks for taking my questions. Russ I was hoping we could just kind of get an update on the state of the consumer and maybe any shifts you're seeing in demand or payment trends that are worth pointing out.
Scott Christian Buck: Sure. So as we've mentioned in the past it's.
Scott Christian Buck: Scott there tends to be some seasonal changes that always occur as we come into this.
Scott Christian Buck: Tax refund season, we always see that the lighter demand at the beginning of the year.
Scott Christian Buck: Part of what we have done by moving to the additional payment options on our site is try to find a way to make sure we.
Scott Christian Buck: No.
Scott Christian Buck: And any way, we can try to guarantee that asset level performance. So part of the payment options that we have on our side is we also have.
Scott Christian Buck: A number of providers below us.
Scott Christian Buck: And that are essentially monetizing our declines so what we've tried to do is really just lock in on a particular asset level return that we want to hit and then let as opposed to try to monetize every.
Scott Christian Buck: Visited the site that is interested in lease to own and have some of those visitors that may not necessarily fit our criteria blow down to others. So.
Scott Christian Buck: Generally across the board.
Scott Christian Buck: We've essentially been tightening, but not so much in response to what we've seen from a consumer perspective, but more based upon what we wanted to achieve from an asset level perspective.
None: Great that's helpful.
None: On the other payment options on the site.
I'm curious are you, adding items that would not typically being leasable that people can now pay for outright or are we not seeing that kind of shift in in our inventory.
None: No we're not seeing that type of shift yet that might be something we look at down the road.
None: Given that flex shopper historically has had a 3000 dollar spending limit cap. What we're really focused on now is bringing in goods that furniture goods home goods et cetera that takes.
None: Extend beyond that 3000 dollar cap do you really lineup with other payment options. If you like there's a lot to fill in.
None: From that perspective, first, especially given the dynamics of drop shipping and especially when it comes to.
None: A large parcel or L. T L shipping for for some of these item types. Once we've sorted through some of these other pieces I think there is a opportunity to us to move into some of those other goods.
None: That aren't traditionally leasable I think complementary.
None: Warranties and other things that can be layered on top that aren't traditionally leasable I think theres a lot more room to grow but we're just starting with the different sectors, we walked through in higher priced items than what we've traditionally had.
None: Great. That's helpful. And then last one for me can you remind us what the typical lag is between opening up a new store front location versus when you actually start to see some meaningful revenue contribution.
None: Sure so.
None: The dynamic first starts with weather that location has had any type of financing or non prime financing in it before to the extent, they're a little bit more experienced it.
None: It speeds up the process.
None: This most recent rollout that's taking place we're replacing our eight another non prime product. So it is a little bit easier adoption plan.
There's always the the training and.
None: Ah different online incentive portals that are necessary to get.
None: The retailer up to speed, but.
None: Given that this latest rollout has had subprime financing in the past I expect three or four months and we will be close to Max originations out of those stores and of course, we have the.
None: The lease to own lag that takes a while to recognize revenue, but from origination perspective, we should get there certainly.
None: Certainly by the end of the summer we should be full steam on this most recent rollout.
None: Great I appreciate the added color and congrats again on the results.
None: Thanks, Scott Thank you.
None: Thank you there are no further questions I'm sorry. Our next question is coming from the line of Michael Diana with Maxim Group. Please proceed with your questions.
Okay.
Thank you Russ could you go over you mentioned on your retail strategy is 720.
Michael Keelan Diana: 580, <unk> eventually <unk> hundred.
Michael Keelan Diana: What what exactly those numbers referred to what what what is the strategy.
Michael Keelan Diana: And those.
Russ: Sure so in terms of the.
Russ: The store count so since the end of 2023, we've rolled out into additional 720 store locations.
None: And these are locations, where we D. We're the exclusive lease to own provider Ah and.
None: They're in the AR automotive.
None: Segment.
None: The goods and services segment.
None: <unk>.
None: We've done 720 through today, there's another almost 600.
None: 580, <unk> that we'll continue to we'll continue to roll out in those locations.
None: Okay in the 1600 is.
None: Oh, So this has been improved.
None: Pricing or something that we already have a partner that has about 1600 locations are this is where we're working together with them to find a new.
None: New improved process to increase the lease throughput.
We're running a pilot with them in the Tampa market at the moment in a number of locations there and the least throughput is up.
None: A little more than double what.
None: What we experienced previously so this is just a.
None: An easier consumer experience tightening closer to the point of sale systems et cetera. So we're excited to.
None: Can you do it.
None: Work and refine the technology, there and then eventually essentially re roll out into those not partner 1600 stores hopefully achieving the same results. We have in the pilot, which is a doubling of originations.
None: Okay, and then when my life.
None: You're in 'twenty 'twenty four.
None: As far as relative contribution goes.
None: Between your quite shocked for Dot com website, the retail what what would be the order of contribution.
None: Our strategies would you think.
None: Oh sure so.
None: No.
None: Given what we're seeing on the online site and the ability to.
None: Increased marketing spend because we have this.
None: Our high margin on goods and we've added these other payment providers you know, we expect marketing spend in that channel.
None:
None: This is offset by the wholesale margin, but we expect that to more than double by the end of the year.
None: Relative basis did.
None: To the same extent, we feel like that.
None:
None: We'll call it the non marketplace the retailer model.
Given this extra store rollout given some of these new initiatives will probably.
See similar impacts obviously, the repeat market dynamics are a little bit different so from a new customer perspective, I expect it to be you flex shopper customer perspective, I expect it to be about 45% online and 55% retail from a total customer perspective, as we've mentioned before the <unk>.
None: Retailer customer doesn't repeat quite as much.
It would be more.
None: Two thirds online one third retailer.
None: Okay, Great. That's very helpful. Thanks, a lot.
None: Oh, Thanks, Michael.
None: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Russ Heiser for closing remarks.
Harold Russell Heiser: We appreciate everyone dialing in this morning I want to thank the team here at flex shopper for all their hard work over the past quarter results generated and we look forward.
Harold Russell Heiser: Another great quarter.
Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.
[music].
Harold Russell Heiser: Okay.