FlexShopper, Inc.
Q4 2020 Earnings Call Transcript

Published: 9 Mar 2021

[Operator:]

Greetings and welcome to the FlexShopper LLC Q4 and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. If anyone should require Operator assistance, please press star, zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Jeremy Hellman of The Equity Group. Please go ahead, sir.

[Jeremy Hellman:]

Thank you Operator. I would like to remind everyone that we have posted an updated investor presentation within the IR section of the company website, www.flexshopper.com, and encourage everyone to review the forward-looking statements on Page 2 of the presentation.

[Rich House:]

Thank you Jeremy, and welcome everyone to our earnings call. Joining me today is our CFO, Russ Heiser. This morning, Russ will be expanding on the key financial aspects of our quarterly results as well as updating everyone on our most recent liquidity initiatives. I will conclude with a summary of our current strategy and our future opportunities. Prior to handing the call off to Russ, I would like to highlight some key points regarding our business in the third quarter. Since I joined the company, I’ve tried to communicate to you that we build our success around three building blocks

[Russ Heiser:]

Thanks Rich. I want to start with a reminder that we have posted an updated investor deck on our website. In that deck, we have added a few data points, including new and repeat lease volume by origination channel. In addition, we have broken out a number of operating and financial metrics by year so that the relationship between prior year originations and current year revenue and gross profit is evident. In our presentation, we’ve also included a new data point

[Rich House:]

Thanks Russ. As a reminder, we continue to emphasize our core priorities, which are underwriting, liquidity and distribution. In good times and bad, those elements enable us to maximize our return on shareholders’ capital. Since Russ has already covered our favorable liquidity situation, I will focus on credit quality and distribution. Late in 2019, we implemented new underwriting strategies, and we have not see any degradation in our credit quality since that time. This stability in credit performance continued throughout the fourth quarter despite the fact there was no incremental financial stimulus to consumers from the federal government. We are pleased with the credit trends we have seen throughout 2020 and for the beginning of 2021. With respect to distribution, I would like to address that topic for new consumer leases as well as repeat consumer leases. Both of these categories are demonstrating substantial growth, but I would like to address each of them more specifically. Direct-to-consumer lease originations from new consumers grew 94.8% year-over-year in the fourth quarter of 2020. This occurred while maintaining a constant cost per new lease. Typically in digital marketing, aggregate increased marketing expenditures drive higher cost to acquire each new consumer; however, we’ve been able to offset this typical outcome because we continue to expand the breadth of our marketing sources and deploy sophisticated analytical market segmentation. We believe our competency in digital marketing will continue to enable us to grow our direct-to-consumer business profitably and robustly. Additionally, this marketing competence differentiates us from our competitors in the lease-to-own industry. Our strategy is to continue growing our direct-to-consumer business via our unique flexshopper.com marketplace and to assist our retail partners with their digital marketing initiatives, which leads me to my second distribution point of new lease originations which is driven by our retail partnerships.

[Operator:]

Our first question today is coming from Scott Buck from HC Wainwright. Your line is now live.

[Scott Buck:]

Hey, good morning guys. Just a couple from me. First, I’m curious if you have the number of applications during the fourth quarter versus the year-ago period in front of you. I’m trying to understand how much of the lease strength was underlying demand for leases versus maybe some changes that you had made in the past year to your underwriting.

[Rich House:]

I do not have that number in front of me. I can tell you that we experienced very nice lease demand, but a great amount of that surge, if you will, in volume was driven by increased marketing activity.

[Scott Buck:]

Okay, that’s helpful, Rich. Second, it looked like other operating expenses picked up a bit in the quarter. Is there anything specific to the quarter in there, or should we think about the $4.4 million or so as kind of a new run rate for that line?

[Russ Heiser:]

Other operating expenses also includes a number of variable expenses, including the processing costs as the portfolio expands, but more importantly it includes the cost of underwriting for all of these new applicants coming in. Fourth quarter has more marketing spend, it has greater lease applications, and has more underwriting costs, so I wouldn’t look towards that number as a run rate but think of it as part of the seasonal adjustments.

[Scott Buck:]

Got it, that makes sense. I think that’s really it for me, guys. I appreciate the time, thank you.

[Operator:]

Thank you. As a reminder, that’s star, one to be placed in the question queue. Our next question is coming from Ed Wu from Ascendiant Capital. Your line is now live.

[Ed Wu:]

Thanks for taking my question. My question is how does the rising interest rate impact, if any, your business?

[Russ Heiser:]

The only clear impact it has on our business is that our credit facility has a LIBOR component to it, so that you would see that start to change our cost of borrowing. But outside of that, there’s no significant impact on our business.

[Ed Wu:]

Great, and then my second question is we’re hearing a little bit about increased shipping costs and some issues with supply chain coming out of China. Has that impacted your retailer business?

[Russ Heiser:]

No, it hasn’t had an impact on our retailer business fortunately. The majority of our goods that we’re leasing off our flexshopper.com site are primarily consumer electronics, and there hasn’t been any delays in those shipments.

[Ed Wu:]

Great. That’s all the questions I have. Good luck, thank you.

[Rich House:]

Thanks.

[Operator:]

Thank you. We’ve reached the end of our question and answer session. I’d like to turn the floor back over to management for any further or closing comments.

[Rich House:]

Thank you very much for joining us today.

[Operator:]

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.