Q1 2024 FlexShopper Inc Earnings Call

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Greetings and welcome to the Flex shopper first 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.

Reminder, this conference is being recorded.

My pleasure to introduce Carlos Sanchez Investor Relations. Thank you you may begin.

Thank you and good morning, welcome to flex shoppers first quarter 'twenty 'twenty four and financial results Conference call with me today are Russ Heiser, our Chief Executive Officer, and John Davis, Our Chief operating Officer, we issued earnings release yesterday, which we'll be referencing during today's call.

Our earnings release, and SEC filings can be found on our Investor Relations section of our website, we will be available for Q&A. Following today's prepared remarks.

Four we begin I would like to remind everyone that this call will contain forward looking statements regarding future events and financial performance.

Putting statements regarding our market opportunity the impact of our growth initiatives and future financial performance. These should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports, including our annual report and quarterly report 10-Q for the quarter ending March.

31st 2020 for.

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.

As required by law, we undertake no obligation to publicly update or.

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 financial information that contains non-GAAP financial measures under SEC rules. These include measures such as EBITDA net income and adjusted net income. These non-GAAP financial measures should not be considered replacements and should be read together with.

Our GAAP results reconciliations of these GAAP measurements and certain additional information are also included in today's earnings release, which is also available on the investors section of our website.

Call is being recorded and a webcast will be available for replay on our Investor Relations section of our website I will now turn the call over to our CEO Russ Heiser.

Thank you Carlos and thanks to everyone joining us this morning.

We'll discuss our first quarter performance and provide some insights into the first quarter of 2024 and some of the.

And the rest of the year.

Overall, the first quarter continued the financial progress from prior periods, comparing the first quarter of 2024 versus the first quarter of the prior year total revenue increased 10%.

Gross profit increased 31% pre marketing EBITDA was up 25% and core earnings of representation of recurring earnings outlined in our press release was up 65%.

Previewed on our last call. There are two new lines on the income statement retail revenue and cost of retail revenue. These two lines represent transactions on our flex shopper Dot com website that are not settled with select shopper nieces or settled with other funding options chosen by the consumer we expect retail revenue to grow over the coming quarters.

First these additional funding options, we're only active for a portion of the first quarter second we expect to add other funding options for the site. This year that will broaden the offerings to appeal to both prime and non prime consumers.

Mentioned previously we want to provide monetization options for all the visitors to our site and channel the margins back into marketing.

See in our financials marketing spend was up 60% versus the same quarter in 2023, as we continue to ramp marketing spend we continue to grow total flex shopper fundings as well as retail revenue.

The other initiatives mentioned last quarter continued to progress.

We continue to add more skus to the site to gain a larger share of our customers' spending.

Launched a micro site focused on electronics with many additional sites and it works in order to have a greater reach than the single flex shopper dot com marketplace site.

Our non prime consumer continues to face headwinds from the macroeconomic environment Theres been an increased focus on enhancing enhancements to our risk based pricing you balanced the cost to the consumer versus optimizing consumer engagement. This has required significant enhancements to fraud algorithms in order to grow portfolio that produces the correct level of asset returns.

On the retail front, we plan to retail expansion of around 580 doors by mid May I am pleased to report that expansion was achieved by the end of April we continue to have a robust pipeline of retailer opportunities both in brick and mortar stores and other retailers websites edition will be offering our leases in Spanish in the second quarter and some verticals have.

And the interest based upon their consumer base.

Finally, we have added one other patents to our portfolio of issued and pending patents focus on providing lease to own options on the online retailers websites and I'll hand, the call over to John Davis to dive into the company's first quarter performance.

Thanks, Russ if you recall from previous conference calls.

John Davis: Our long term plan for our lease business consisted of three key items first we wanted to improve overall asset quality from the more challenging time periods, where you move will of government stimulus and higher consumer price inflation caused deterioration in payment performance.

John Davis: We wanted to continue to rollout our online retail strategy, where we realized product margin revenue products, we sell on our flex shopper Dot com marketplace third we wanted to take these quality originations and grow them. We continue to make good progress with each of these key initiatives.

On asset quality provision for doubtful accounts as a percentage of gross lease billings and fees was 26, 9% in Q1 of 'twenty 'twenty four.

This compares to 32, 8% in Q1 of 2023.

Approximately 590 basis point improvement or an 18% reduction year over year.

This is a $1 $75 million benefit in 2024 versus 2023.

New originations continue to demonstrate favorable early payments versus the same period last year, which suggests that provision level should continue its year over year favorability absent any unforeseen short term macroeconomic impacts.

Regarding our online retail strategy continue to see benefits of introducing product margin to our business enabled by our flex shopper dot com marketplace our.

Our depreciate depreciation and impairment of lease merchandise costs as a percentage of gross lease billings and fees was 41, 6% in Q1 of 'twenty 'twenty four compared to 44, 8% in the same quarter last year.

This was approximately a 660000 dollar benefit year over year.

This is being driven by product margin on goods sold and is recognized over the term of the lease.

John Davis: In addition, we launched a partnership with an additional payment solution partner in Q1. It provides funding solutions for customers that flock shopper cannot serve through our lease offering.

This resulted in an additional approximately $800000 in revenue for the quarter and represents incremental conversions of traffic to our site that would otherwise have been lost.

As we advance through the year, we intend to expand the payment options available on our marketplace to continue to increase website conversion and grow sales.

Lastly, we are looking to grow the business with these improved underlying economics.

John Davis: I mentioned in our last conference call that we had higher year over year dollar originations for the first time since 2022.

I am pleased to see that revenue grew year over year for both leases as well as loans and excludes the impact of additional sales from the additional payment provider that we added as I mentioned earlier.

As lease revenue is recognized over the life of the lease growth and originations will have a lagged effect on revenue, which we are starting to see now.

Like shopper lease origination dollars grew again year over year in Q1, which was driven both by expanded marketing activity on our marketplace as well as growth within our partnership point of sale channel.

We launched a new partnership in Q1 within the tire space and this rollout is running ahead of our expectations.

John Davis: We have a growing pipeline of new potential partnerships and expect that this isn't an additional tailwind for originations growth.

Net revenue for state license loan business grew 19% versus last year.

Actually we have seen better than expected collections on our bank partner loan portfolio, which resulted in 21% higher net loan revenue from increased fair value assumption.

We stopped originating new loans into this portfolio last year since our bank partner chose to exit the high APR business.

However, we are actively pursuing a new bank partner to bring this back to our list of options to better serve our retail partners and customers.

The combined results of these activities is an 18% year over year increase in adjusted EBITDA of $7 $6 million for this quarter our.

Our strategic plan remains in place, which is to continue to grow our lease and loan business with favorable asset performance that we're seeing and expand on the on timeline retail opportunity that is in front of us.

John Davis: We will remain vigilant in regards to signs of any potential future economic slowdown, but we continue to see customer interest in shopping within our channels with continued job growth and low unemployment rates as well as stabilizing consumer prices.

I want to thank our team for the hard work and results.

Look forward to what we can achieve through 2024.

That let me turn the call over to our operator for any questions that we may have.

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, a confirmation tone will indicate your line is in the question queue.

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

One moment, please while we poll for your questions.

Our first questions come from the line of Scott Buck with H C. Wainwright. Please proceed with your questions.

Hi, Good morning, guys. Thanks for taking my questions I was hoping you could give us a little color on now that we're halfway through the second quarter on whether or not the.

Traditional seasonal patterns have kind of held here in terms of originations going from first quarter to second quarter.

You know, we we continue to see similar patterns, where you know we have a seemingly much larger fourth quarter. That's been tempered by a slower first quarter, we see a good number of early payoffs coming out of the tax.

Tax refund.

What we've tried to do though by having these additional funding options is try to mitigate some of that seasonality that we've experienced in the past and also by adding additional skus to the site by not being so consumer electronics heavy get out of that cycle of <unk>.

Fourth quarter high originations.

The same cycle still persists I think we'll continue to see it for a good while now until we've continues.

<unk> to transition away from consumer electronics as being a large portion of the goods on our sites.

There's still the.

John Davis: The same dynamics for me.

Perfect. That's helpful and then I'm curious when in the quarter did you guys start collecting the retail revenue or or you know revenue from additional payment options. You said it was a partial quarter. So just trying to understand right.

Alright late February is when we kicked it off.

Okay, Okay, perfect and then last one.

Wanted to ask about marketing Opex. It seems like you have an opportunity here to.

Really drive some new volumes by ramping that up a bit what are kind of the thoughts here for the remainder of 'twenty 'twenty four in terms of how we should be modeling a marketing line.

John Davis: In the P&L.

So as we continue to add new financing options for the site the expectation is and monetize more consumers the expectations that will continue to grow marketing spend.

Yeah, well, it's really going to be dependent upon when other funders join and how successful they are but as we've mentioned in the past we want to stay at that spot where the margin both on.

The flex shopper goods and on the other funders goods.

It was our online marketing spend so as we continue to you know so it should it should be symbiotic as we continue to grow our hopefully it'll.

John Davis: We will continue to grow the margins to offset that enhanced marketing cost are obviously there are some limits as to how much you can grow marketing without having some inefficiencies. So we'll continue to scale. It as it makes sense as we bring on new funders, especially funders that are more in the.

Prime Mish category, we expect that that'll.

That'll give us more runway to grow marketing.

Yes.

Sort of in whole.

Yeah, the expectation is to continue to grow it.

About 20% per quarter, but we'll continue to monitor it based upon you know.

But we actually are seeing occurring on the site and with our consumers.

Great. That's helpful. I appreciate the time guys. Thank you.

Thanks.

Thank you we have reached the end of our question and answer session allow now I'd like to turn the floor back over to Russ Heiser for closing remarks.

Sure Thanks for joining.

Harold Russell Heiser: Joining us today, we look forward to updating you with next quarter results when you.

Harold Russell Heiser: You know express how much are the team has been doing here at flex shopper and thank him for all that they've.

Done over this past quarter and continue to do this year. Thanks again.

Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

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Harold Russell Heiser: Yeah.

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Harold Russell Heiser: Hum.