FlexShopper (FPAY) 11 Aug 222022 Q2 Earnings call transcript

Greetings, ladies and gentlemen, and welcome to FlexShopper, LLC 2022 Second Quarter Financial Results Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Mr. Relations. Investor Sanchez, Carlos

and good conference to are call. Officer; our can night and earnings Financial of Chief our and Operating XXXX Rich Relations be second morning, found presentation corresponding during these our last earnings Executive Officer; be section Chief will on Heiser, result With Russ we Davis, morning. referencing you release Chief FlexShopper's website. the Officer. issued Welcome quarter investor House, John Thank me this We and call. Both Investor today

We will Q&A following remarks. prepared today's be available for

financial for by or as any statements, a law, no Except Before publicly quarter everyone market statements and our future subject undertake events with we These update in information, XX-Q new will report performance, begin, regarding required earnings performance. from statements. to current considered periodic most as I materially our in this are forward-looking regarding a would quarterly future statements opportunity, management's cautionary expectations contained that like to and These the beliefs, revise financial to to contain and XX. reports, the be our conjunction the differ statements ended of obligation release cause company's actual assumptions factors these Form SEC those of of may including any that results we whether result remind recent impact future should second and of initiatives our number or statements and including events growth call our reflect our June otherwise.

available replacements under as – section non-GAAP Investor available which should GAAP will EBITDA our Relations net be certain of in GAAP the to that of together a call financial our is results. to today's included will we include now for release, be our and measurements net Rich. considered Reconciliation additional should measures and This on performance, earnings read These and the constitute such our being financial certain Investor and adjusted Relations replay our of These discussion I non-GAAP turn income. measures information is be over measures financial rules. today's call not website. with information will SEC on financial website. recorded, adjusted also are income During section provide webcast

provide of results the lending in financial you to you to more Carlos. and format and with prior Thanks, morning, prepared ending of call. and any specific Good Officer, strategies we for will a strategies. remarks brief This progressing insights time I today's I XXXX by endeavors. on regarding are our John us some Russ and the the used we Operating in leasing of Chief results will an may In how joined call. morning, the direction, Heiser; quarter we the questions and detail, stick be everyone, have execution our end have future FlexShopper general our both with joining provide thank our second and John for for CFO, Davis. we're last going I will quarter. Russ the will call, overview the cover will the summary earnings will with

of growth provide taken is there focusing leases seems money will is consumers the an by like inflationary bills previous these spent phases nine quarter income of years, significant programs more required and phase and past are non-prime has time over of several been to slower quarters. million. combination the environment. I'm months continued their this expenditures, over inflationary moved this the slower is non-prime breakdown for toll to stimulus loans in that from call a not increasingly slower of pressure quite the in happened employment $X.X It unlike the probably unwind of pleased $XX.X pay that anticipate profitable available This the of sure some money the consumers time continue detail consumer. growth bring impossible slower growth FlexShopper this were XX did have these of through unusual EBITDA is on not in probably and The a exactly second to to current but the on environment necessary is on problem, are U.S. and living. environment. reducing shortly. our possible employment million growth, spend results lack on how Russ home to is future aware using dealing into has government a amount from a would of stimulus It they amount with an accompanied has or consumer what to when how everyday some everyone We is government report the in segment made past the and net of purchases we you benefiting economy not last macroeconomic regarding inflationary of walk growth pressures. I the population being

In over it an Last resulted we However, in exercising payment told in behavior. tighten last standards to bad caution to we has continued economic you declining impact deal of ensure is obvious quarter, in on appropriate to This a two in an the competitors publicly both environment. further uncertain quarters. economic had we debt increases our FlexShopper been second there announcing amount environment. the we their tightened the traded order our with quarter, allowances and underwriting has were

is of the we discipline a will now growing risk. FlexShopper I overview credit the Russ for The continue a we regarding appropriate important over turn partnership. part new to the call of from review and strategic we highlights exercise separates the an even while retail can story financial others of believe

Thanks, Rich.

these financial quarter conditions. reflect manage second a customers as environment operating our Our results challenging inflationary

this of a we'll forward. to growth. market offering natural continue The Last SG&A growth underwriting and changes quarter a rates, technologies only the navigating avenues Lending are the profitability in on testing announced leasing our servicing within are the completed approval product we're to align our we program, around second by had the to and included lease-to-own lending of our environment. we new the This our year, durable to goods. of FlexShopper, moving complement is existing additional to are situation capability our substantially quarter, initial size has to phase current of portfolio Lending increases lending We grew adding our current rollout adjusting add business providing that and is items and focusing control. into confident significant we which moving the for with phase. offering for the to significantly confined addressable

second the does quarter second the this of year. the Finally, the resemble of not year economic quarter conditions prior

prior from the for the of $XX.X with down XX.X% the period. past last previous increase up which the over quarter. the up same XXXX prior monetization three the quarter prior XX.X% versus but up retail Lease from In up million, X.X% company net year-over-year has addition, up which same were change the channels. and focus versus over I'm $X.X up quarter million year revenues prior to Operating by million Total going the revenue year a revenues largely were the million, new evolved expense quarter. of the product XX.X% driven profit also was primarily total $XX,XXX up versus operating significantly but year-over-year. second change accounts. or and was financing to in up up an quarter Gross delinquent additional factors. cover our due the loan This $XX.X expenses X.X% and versus not was was $X.X last and million, is The year-over-year ago quarter. Therefore, the only over year XXX% versus only are were $X.X on revenues Loan a quarter. year and XX.X% growth

leases in was expense drive of in a and first fundings $X.X The direct increase million loans. growth to total the both marketing

as growing one-time costs to the as includes Next, initiative. there about and new servicing loan and well teams wholesale businesses already the costs strategic underwriting for variable are to marketing is contributing. new $XXX,XXX final $XXX,XXX are the related our employees feel expanding those The additions and related and of

All of million million million, an the up more prior year-over-year, $X.XX of quarter. budget EBITDA in and Rich was Adjusted discuss quarter part in growth detail. plan, and our which $X.X our second these increase up versus $X.X of are XXXX $X.X strategic expenses the from were will of in million

the second valuation of in XXXX. income the a for the release the net to was benefit Our quarter quarter of second of in resulted second tax of $XX.X deferred compared tax net The million asset million quarter allowance of in $XX.X approximately $XXX,XXX XXXX of XXXX. income

to versus been The double benefit, touch have million Excluding XXX-plus-door the our and I income quarter. the our $X.X bulk The the million the is of and was brick-and-mortar technology tax and same second partner. retailers. up retail quarter last point partners our retailer during want legacy new regional or quarter partnerships last national first on year net $X.X

Our technology these sales without the of very immediate and is to quickly competitive integration cycle. enable initiatives rapid and retailers has point developed this rollout types segment were sale. into a of market of Unfortunately, the onboard extremely long

service a that an to the we've exclusive beginning we allow is or us entered onboard enter we partner us for However, technology. as to onboard into and as smaller year, significant enabling as our not Since market our wanted a efficiently as single-store had a quickly of retailer that well do looking retailers XXX-store the backlog path smaller we of a retailer to to to been and with recently could legacy the relationship technology partners.

by year. count X,XXX this As such, end door before increase we expect the to of our doors

this expect with X,XXX year a doors. year As started end X,XXX and around we active the reminder, doors to

of presence financing significantly brick-and-mortar small products of and increased retailers. boost combined and will suite our diversifying also medium-sized with market addressable retail Our has more our while into retailers

our course, the additional our strategy with adding larger retailers relationships expanding that retailers. hasn't current Of changed or national around

goods. for retailers our storefronts that focus of not nondurable That us their our footprint because one them the fact, historically increasing In of were is loan on larger with alternative. suited also now lease-to-own via retailer has

start end be we an based the quarter of the fall. XXXX. expect by full We piloting additional to the And this of of on first the it stores rollout, XXX-plus timing will

in continues products more in and Our discuss a I'll our the John robust is and variety to accessible online sales approach to operations to of both stores. turn stay now of detail. to testament over pipeline a offering it our

Thanks, Russ.

Rich challenging decades. not As their in both have a in inflation with mentioned environment remarks, are operating customers we for Russ our and seen levels in

cash customers car food power and their other have is and necessities wallets, as obligations. spending available for housing, mobile and such items, payments, in prioritized service phone essential being key Our other their lower and

standards conditions. these we to in our tightened mentioned As response earnings in in our last QX underwriting call, this year of

in performance QX. have to actions see early these in in year-over-year consumer resulted While continued better have we stress payment rates, our default

we we As reduced applicants. continued this this quarter. tightening, result, year, Despite underwriting in in into lease past quarter. a reduction quarter's over what QX origination we down perspective, compared put approval QX have dollar in I business this year-over-year see within To improve am were tighten of our XX% our has year to significant a our our from new flat which lease the is to further lower. have This rate volume rates to to last this last XX% approval move approving pleased by resulted standards customer year-over-year a for

up Additionally, despite overall XX% tightening. volume we dollar quarter-over-quarter credit lease over are in the

through over XX% see business the fronts, XX% year. an continue new driven of lease we quarter-over-quarter, this to expect and up door by is rest partnership which in to increase Our year-over-year

our from lease our approval year-over-year marketplace credit down lease Regarding is decline business, rates tightening. in the with volume

tightening. However, which is growth new customer higher is XX% fueled up dollar reasons. happening is being a despite sequential sequentially volume quarter, credit last This few the even our by marketplace volume lease from for from

made enhancing by and Our segmentation purchases marketing retargeting programs adding online through search sophisticated team in user messaging, has our significant a efficiency improving suggested recommendations to customizing our and in on-site more strides our experience recommendations. scheme

approved conversion As up approval defined with a customers result of this, purchases, as year-over-year. rates, significantly – are

in resulting the by dramatically using value customers demonstrated a efficiency year. our higher offset granted efforts lower last within the more credit purchase of by average as funnel. tightening Additionally, are order an These XX% by from approval our rates sales improving of are who

in both look we comps at and lease partnership early in As QX, July. marketplace channels seeing in trends we're our positive year-over-year

a a important We than perspective are credit It healthy marketplace. repeat also within engagement at quality our repay new customers repeat from seeing is rate customers. as better customer

customers new quarter are a marketplace repeat on with making last increasing compared of We quarter. observing purchases our to percentage rates higher subsequent this

to deterioration as We conditions the improvements timely are This slower in or advantage performance auto to product constantly making in allows warrant. performance adjust conditions more as see quickly quickly or our conditions from payment monitoring worsen us and is credit credit we measurement. adjustments policy performance The or feedback credit comparison improve with cards, lease of mortgages. loans loop as

in decision a before. as made credit grow deployed is at Being the we investments of quickly targeted than team time science latest the stable key our while with the our tools underwriting the making Additionally, data, same able more goal quality team. revenue dividends are are both to paying underwriting keeping new strategy

our initiative. to lending were million versus from with Turning last significantly Originations $X million QX up $XX.X QX. in in quarter

very lease As business. for the prudent our business, be is in our standards case the continue underwriting with loans we to

of market with risk type this goods. hard we further in business building able grow the Our been work retailer of and have business large as tools Loans addressable decision to seller science this beyond team expands profitably. do new product marketing be has the to at can also a hard

leverage the also loan able through growing with year. this place In and cautiously and We manage increases both our on impacts of tight grow effectively risk as by underwriting seeing at expansion our are volume are both improving the check guard dollar same on SG&A minimal a non-marketing plan of operating rest against in in standard expense strategy. lease credit businesses acquisition loans our platform we we grow to inflation the with keeping costs We this keeping and time the of to to our our channel customers. to summary, while

and experience, let an we well the continue be back consumer as inflation of products, take our distribution to placed tools our statistical will user advantage me our we that, in and to to optimize loan networks expand Rich. modeling lease both turn we As to call decreases. over confidence With uptick

to team defined growth behavior. our Thanks, as management would strategy, an understands of John. closely which economic we us the environment. credit continue profitable We The our summarize enable lines I monitor a can operate In to disciplined uncertain business view payment customers' economic closing, like diversified future the in risk. environment, with to continue will of in grow and we of will believe to be irrespective

time, leasing long diversity. our provided omnichannel a some has For to approach

growth. initiative new John mentioned, as new opens lending Additionally, a our up for avenue

who wholesale retail at newest the to these hard-to-find time, many We those profit we margin. growth is us relationships. a derived plan growing continue at support items retail on make of been We to incremental partnerships unique existing and merchandise provide otherwise. profit sell profits FlexShopper retail have Finally, direct profit the our retail be us great and is or This cases, able we environment. have initiative online market. have They and initiative. them at capture the FlexShopper.com built sales lease vast nurturing we source manufacturers Historically, very to prices. the partners. over distributors little delivery earnings become products through retail our from that with proficient retail from and the with access is has our In And the Obviously, creating marketing. the marketplace with majority retail of transaction retail sales. from customers inventory our would relationships with not our to support access consumers, partners from prices and

these However, furniture, there currently penetration rate bedding, our types fill such items are to jewelry, goods, and marketplace a are for like We gap. consumer have as cetera. in bit et would many more a we small relatively that that common, of

In XX have to strongly these lending of significant time. second to Selling the include a growth now lending, this have we for sales, done our quarter, products retail streams business we past products incremental and business leasing, Thanks on signed the the these we a the initiative, provided and focus partners. FlexShopper the we by marketplace through testing together our professionals the line require for and of has investment. revenue conclusion, Over partners creates is complementary small a initial retail results retail year, scalable the company. profitable put margin diversifying this marketplace, to are team for wholesale sale Like the over and the therefore, FlexShopper. more your of promising. not what which making platform a on began of In investment complementary does in greatly FlexShopper, the lines, believe experienced increases continued retail profit past,

opportunities front about mean bullish are We its the in what us of and they and the company shareholders. for

We are now any happy may answer to time. at this you questions have

Instructions] we gentlemen, question-and-answer Thank Wainwright. first a conducting sir. The session. now question from would comes Ladies you, [Operator Scott of and Buck be H.C.

guess. my – guys. afternoon good for for taking you Thank you morning, I questions. Good Thank

on running you the through and are again of at counts, be store do Russ, end mind you'll the you numbers year? those where First, where

at to we'll about and X,XXX with No where active X,XXX started We all. quarter add end And expect then XXX first of with additional another and about Sure. our doors. I add partner next about by problem so doors doors, the mentioned the expanding or program, loan with year. X,XXX year current we're

Okay.

at right? looking year so? So store now, versus count the triple we're or being from basically a X,XXX XX

right, That's Scott.

Do number think economics? door right how of the way kind they I mean, generate leases incremental we individual think that guys through talking of value what's a about Do store you to of each mean, it? the add? I year? mind you xx should about

in active we of should door From perspective, week, requires leases at think month. per Sure. being adding per our doors as it's $X,XXX X each at about lease these – an least but least

break the you how here? how are I a turning the things quarter guess, makes kind And you kind mean, Okay. meaningful Or the control growth role. like next wider given tap we quarters? in, the opportunity? to longer-term the loan That's which And see the growth real What's go? do should I of then this of A over helpful. product. and sense very jump expect several sequentially, you

I'm hand one going Davis. this off to John to

Yes. QX increase Yes. QX Hi, The percentage to certainly significant. from there. was

originated the be both of that from the have. QX, increasing growth see lease in we door will depending count it million is grow the do won't at because It going we retailer we or levels. deploy While we're to what conjunction on with kind in $XX-some-odd same the loan

grows, but increase the increase of in be same saw current you QX. it from as won't it levels, percentage sort So it will at

let Scott, to that. add little extra context me a

a and were and quite we quarter in mentioned, a have with lending last year, we second accelerated the into the over year program comfortable As of started program this lending we for We this we testing got well ago, quarter. mentioned while. as

about couple As remarks, I in prepared a spoke are an uncertain of economic we times the in environment.

so And also we're any with economic closely conjunction the our want the of as on expand while early keeping we storefronts, mentioned, we results do. our to John and environment eye in monitoring lending

going be So We environment. economic good continue the operate to results, under continue we think operating to would are able level to grow. normal will we in more a under capacity we'll we to be have but

guys. one helpful then last That's Great. And for me.

remind just products. the adjust the on to how could how you're able and in, loan lease both – we're you underwriting us quickly given environment If the standards

cetera, take statistical have be advantage team decision again. rebuild a the comes of nimble tools, Yes. The also environment, macroeconomic cautious. quickly technical From to is we'll to we're credit to No, credit ability From current to perspective, this new reacting lot sciences data. to it John models, our when have very enhancements the – most to enacting of be policies. allowed we us a et

the early moderation very early like looks points. some We inflation those too increase think, have recently, way react in I to it's data seen still, to but in what

we months. go credit continue we'll as through to monitor So few next the performance

remarks, quick longer and in takes to my lot credit fairly a nimble do evolve. provide versus that and that a the products changes us credit I KPIs making be product to more mentioned lease As prepared allow loan

cautious quickly, fairly So we still those to can't but going and conditions the react observe we're over to few be months. next

question think, I great Scott job a of John, answering me Let asked. – you did that the

make you ask, once question you Scott, didn't fast make those a an is answer which really can they me changes, Let impact. how

of have One lease products lending is and relatively our short of duration. the a features they

or short to case, with time a impact of this in of changes, period credit asset see make we've the on do a total you that the tightening of short within policy, we once new because relatively new you each produce the been a performance a portfolio duration lease. loan good pretty overall begin So the

And here. more sense, in That guys. guess to Great. one makes I going I'm sneak

I terms months we are mean, than – underwriting few put – this ago. I more can But tighter your In were we're some context know historical of where standards, last are pre-COVID? are we business? it? we significant is a know Where word, is right recession you time macroeconomic, there the macroeconomic if the you was the pressures versus significant last I a but versus don't on around

some so to the I'll it's dealing last time to company – the answer Well, easier, John been let was significant turn time through say question then speak, the company hasn't So crisis. about that. to latter I question to that's impact compare give difficult at another really and recession, right? previous with over back this, harder it because This financial me was this, a saw which think to the like and a we him

can't versus tightening think question. feel But are probably we John we level, the So answer give will, you pre-COVID. really that where you can now relative a if for I

to turn I'll So you. John, that

Yes.

level economy the beginning of what the shutting haven't QX U.S. going was tightness, this been the tight I was we of consumer XXXX, where of think index down. there and around pandemic uncertainty could ton happen you of will, if the you with a very in if since to

of certainly very were So as had visibility pre-pandemic. was we the beginning we tight We're happening. are than of before the what were pandemic we as tighter almost at we

in lease despite growth is especially we certainly to levels. see very our volume in underwriting those credit I'm So having standards, our are cautious pleased which why sequential

we in if And And that at fall things to say the who we that company we that roughly came did, one XXXX. where equivalent at tightening have point were is the for the I now transcripts, the of end would call, of some are here in conference while, of where cetera, of I followed XXXX. time. did for those you we would look et I you'll is the a say first back at

appreciate I on and Well, congrats quarter. Great. the the additional guys color

Thanks.

Thanks.

Michael of from comes Maxim Diana question next Group. The

Rich, welcome So back.

you. Thank

I make I what just calling want understand you're to sure retail.

what product. and through electronics into channel. lease said, right? a And going – I And really your like I It's Is things you leaving from think jewelry – all. are some marketplace furniture, consumer those So mainly you're important out it's am beyond things things? is

which A I through that. requires it the more product. is – lease and economics consumes States consumer that think has marketplace. and obviously, lease been that electronics as from Obviously, maybe vast our retailer something. more operate goods – We our FlexShopper.com, have the we wanted economics. historically, tended We leasing. consumer, And little consumer. most some my is to majority a that, to lease part. States much have gaps. buy the get We on We on we retail marketplace such the on the to that than specialty the clarity we fill our United – the retail We presence. a And more over in offer time to our retailer profitability marketplace the and penetration for sells and United the have partners from of rate just

price, wholesale at and partnered we had we retailer what limited wholesale marketplace. move those studying price products, normal to we like are than buying a we've to bedding, with on retail So would. marking goods, partners, into our we've – X.X volume retail that, cetera, ago, where margin, is have we wanted just and years directly then household which the partners enables such some this as common to and doing up to we furniture, do us chosen capture more a even jewelry, the from started Rather about et

that from this and success as that profitability just of quarter, So make in tested case, finances as Does with us which sense? degree launched the in line sell. the retail that lease some we've enables from well this itself to profitability the second business, sell the of new retail we derive

Yes.

these you're And Of electronics? selling? just for it your is Or course. existing are products for doing you this consumer new

It's seem electronics primarily the products. products space, – to And the we're partners as that remarks, nurture prepared partners very we're pleased the to existing very to and be new working is pleased with that. those Those and our we're continue mean And well. business – in I grow I as in the for well to with very for going well. are said going going very in us, selling we're retail relationships. our

Okay.

guess the you're endeavor, be I margin So what should newer the on saying bigger?

We That is new future, that margin any don't – retail our capture marketplace. a so our testing in the to we should able endeavor, more on relatively be we indicates have further speak to the business. diversified that as would it that thought is how we but about large that something could it as to we be, insight has evolved point a line of

Okay, great. you. That's helpful. Thank very

turn House now we remarks. over our session. will Rich for the call question-and-answer have of to I reached gentlemen, end Ladies and the closing

for and you thank to morning, next Well, quarter. time forward we your this to look everyone, you, speaking

disconnect and your your Ladies you. you Thank participation conference. and Thank that you for now today's gentlemen, concludes may lines.