FlexShopper, Inc. (NASDAQ:FPAY) This autumn 2022 Outcomes Convention Name April 25, 2023 8:30 AM ET

Firm Individuals

Carlos Sanchez – IR

Russ Heiser – CEO

John Davis – COO

Howard Dvorkin – Chairman

Convention Name Individuals

Scott Buck – H.C. Wainwright

Michael Diana – Maxim Group

Operator

Greetings and welcome to the FlexShopper, Inc. 2022 Fourth Quarter and Fiscal Yr Monetary Outcomes Convention Name. [Operator Instructions] As a reminder, this convention is being recorded.

It’s now my pleasure to introduce your host, Carlos Sanchez, Investor Relations. Thanks. Please go forward.

Carlos Sanchez

Thanks and good morning. Welcome to FlexShopper’s Fourth Quarter 2022 Monetary Outcomes Convention Name. With me as we speak are Russ Heiser, our Chief Government Officer; John Davis, our Chief Working Officer; and Howard Dvorkin, the Chairman of the Board.

We issued our earnings launch final night time and corresponding Investor Relations presentation this morning, and we’ll be referencing these in the course of the name as we speak. Each might be present in our Investor Relations part of our web site. We will likely be accessible for Q&A following as we speak’s ready remarks.

Earlier than we start, I want to remind everybody that this name will include forward-looking statements concerning future occasions and our monetary efficiency, together with statements concerning our market alternative, the affect of our development initiatives and future monetary efficiency.

These needs to be thought of at the side of cautionary statements contained in our earnings launch and the corporate’s most up-to-date periodic SEC experiences, together with our annual report Kind 10-Okay for the 12 months ending December 31, 2022.

These statements replicate administration’s present beliefs, assumptions and expectations and are topic to numerous elements that will trigger precise outcomes to vary materially from these statements. Besides as required by regulation, we undertake no obligation to publicly replace or revise any of those statements, whether or not because of any new data, future occasions or in any other case.

Throughout as we speak’s dialogue of our monetary efficiency, we’ll present sure monetary data that comprises non-GAAP monetary measures underneath SEC guidelines. These embrace measures equivalent to EBITDA, web revenue and adjusted web revenue.

These non-GAAP monetary measures shouldn’t be thought of replacements and needs to be learn along with our GAAP outcomes. Reconciliation to GAAP measurements and sure further data are additionally included in as we speak’s incomes launch, which is accessible on our Investor Relations part of our web site.

This name is being recorded, and a webcast will likely be accessible for replay on our Investor Relations part of our web site.

I’ll now flip the decision over to our Chairman of the Board, Howard Dvorkin.

Howard Dvorkin

Thanks, Carlos. Good morning, everybody, and thanks for becoming a member of us for the decision. As traders know, I usually don’t take part in these calls, nonetheless, I needed to personally handle the passing of our former CEO, Richard Home. Wealthy was a visionary chief who performed an instrumental position in shaping the strategic development path of the corporate and setting the corporate for future success.

Wealthy Home was not solely a pacesetter of this firm, but in addition a mentor and shut buddy to many people at FlexShopper. Wealthy actually left FlexShopper in a significantly better form than when he discovered it upon becoming a member of us.

Between the numerous improve within the firm’s expertise in addition to an outlined strategic plan, that can doubtless be his legacy for years and can profit our firm for years to return. Wealthy will sorely be missed. On behalf of the complete FlexShopper household, I wish to lengthen my deepest and honest condolences to his household and family members.

As you realize, upon the passing of Wealthy, the Board of Administrators appointed Russ Heiser as our new Chief Government Officer. Russ has been the Chief Monetary Officer for FlexShopper for longer than even I’ve been concerned within the firm. In that position, he was uncovered to each side of the corporate, not solely main the finance and accounting groups but in addition the capital market actions.

Clearly, I’ve all the time been impressed by his mind in addition to his unimaginable work ethic.

As well as, he led the current acquisition, which we’ll talk about shortly. Most significantly, we labored extensively with Richard Home in addition to John Davis, our COO, studying from each of them, which is essential. The Board of Administrators in addition to myself has the utmost confidence in Russ, frankly, right here within the likelihood, and I’m sure he is not going to disappoint any of us.

As a major fairness investor, I’m laser-focused on driving earnings that will likely be translated into the next inventory value. Final 12 months was a really tough 12 months, and I used to be not significantly pleased with the corporate’s efficiency. In actual fact, I don’t suppose any of them, principally the administration workforce, was not comfortable. However this 12 months is a unique 12 months.

I’m, nonetheless, very comfy stating that this ships course is about to supply future sustainable development. Actually, with the current acquisition of Revolution, I’m assured that FlexShopper is taking the appropriate steps to broaden its distribution channel and choices of the monetary merchandise that can end in future earnings.

I proceed to have the utmost confidence within the firm’s enterprise but in addition the present employees and administration groups which might be led by Russ and John Davis.

Now let’s transfer on to the earnings report for the quarter. As such, I’ll flip over the decision to Russ.

Russ Heiser

Thanks, Howard. Good morning. I respect everybody dialing in to hitch us. At this time I’ll cowl ‘22 outcomes and 2023 highlights earlier than handing the decision to John Davis, our COO, so he can share additional insights on the operational metrics earlier than opening the decision to questions. However first, I’d prefer to thank the workforce members for his or her exhausting work over the previous 12 months, particularly their dedication throughout what has been a turbulent 12 months. Macroeconomic situations in 2022 disproportionately impacted much less prosperous households, that are a big a part of our buyer base.

Declining financial institution balances in an inflationary atmosphere not seen in over 40 years created a headwind to portfolio efficiency. This resulted in important tightening of our approval charges led to a decline in originations that put strain on the corporate’s monetary efficiency within the second half of 2022.

Fundings decreased 8.7% to $27.4 million from $30 million for the fourth quarter and elevated 23.1% to $107.5 million from $87.3 million for the entire 12 months in comparison with 2021.

Whole income for the fourth quarter of 2022 was $21.4 million, which was down 31.1% year-over-year. Income for full 12 months ‘22 got here in $107.5 million, which is a rise of 23.1% in comparison with $87.3 million for 2021.

Gross revenue was $3.8 million or down 68.5% within the fourth quarter versus the identical quarter final 12 months. Gross revenue for the 12 months was $37.1 million or 19.7% decrease than the prior 12 months. We reported an EBITDA lack of $4 million for the quarter and an EBITDA lack of $0.5 million for the complete 12 months.

On high of this disappointing monetary efficiency, our acquisition within the final month of 2022, coupled with the current passing of our CEO, was an ideal storm of occasions which led to a delayed submitting. We don’t anticipate this to reoccur.

On a optimistic notice, web revenue was $7.9 million for the fourth quarter and $13.6 million for the entire 12 months mixed — in comparison with $3.3 million for the prior 12 months. This strain on our enterprise within the second half of 2022 drove a renewed give attention to sustainable fundamentals resulted within the firm streamlining operational prices throughout the enterprise, together with optimizing underwriting and personnel which have positioned the corporate for achievement in 2023 and going ahead.

We’re already seeing enhancements to gross revenue and EBITDA during the last a number of months. This strain additionally spurred us to search for alternatives to broaden our attain and enhance the efficient yield on our portfolio given the present atmosphere.

Because of this, we acquired the property of Revolution Monetary in early December, which added 100 brick-and-mortar areas with the potential for over 1,000 productive areas inside the Liberty Tax franchisee community.

This transaction accelerated our enlargement in state license lending resulted in a major enhance in our web revenue for 2022. This acquisition will proceed to be a key a part of rising EBITDA and web revenue going ahead.

As well as, we’re happy with the place we sit in the intervening time with 5 months of seasonal lease efficiency information. With our underwriting on the right spot, the corporate can start rising high-quality originations.

To that finish, we signed a 5-year settlement extension in March that can present for a major enlargement with our largest retail associate. This settlement will present enlargement alongside a key vertical for FlexShopper and supply additional differentiation to our buyer acquisition channels.

I’ll now flip the decision over to John to debate our operations in additional element.

John Davis

Thanks, Russ. As we observe the financial situations, we’re comfortable to see the speed of inflation diminishing in current financial experiences. The FlexShopper buyer is especially weak to the impacts of inflation, and we noticed that in our cost efficiency in 2022. This monetary stress has resulted in a major year-over-year discount in approval charges attributable to our credit score tightening, which has suppressed our origination volumes.

With inflation moderating, we’re seeing stability returning to our prospects’ monetary scenario, which is leading to bettering buyer cost efficiency on the finish of This autumn and into Q1 of 2023. Approval charges had been down 38% year-over-year for This autumn as we stay conservative in our credit score requirements. Nevertheless, we’ll begin to see year-over-year approval price variances slender as we lap adjustments that occurred final 12 months.

Even with this approval price headwind, our lease income was solely down 4% year-over-year in This autumn. This outperformance versus the approval price comparability is happening due to a couple elements. First, complete utility quantity was up 21% year-over-year with our market driving a lot of this demand.

We noticed a spike in demand in the direction of the top of the vacation buying season, which resulted in elevated utility move and a 12% optimistic year-over-year comparability in market originations for the month of December.

Secondly, our common order worth on funded leases was up 16% year-over-year. Third, we’ve got seen greater conversion charges on prospects we do approve. Our advertising workforce has continued to make good progress in bettering our on-site consumer expertise and retargeting campaigns to extend the variety of prospects who buy after receiving an approval in addition to focused product suggestions to extend utilization of authorised spending limits.

Our bricks-and-mortar lease originations had been down 21% year-over-year. This was attributable to one in all our strategic companions inside our pond lease vertical transferring off of our leasing program in August of 2022 that generated important quantity in This autumn 2021.

Offsetting this drop of quantity was development inside our tire lease vertical in addition to the additions of latest pan companions that launched to start with of 2022. As of the top of 2022, FlexShopper had 2,004 retail associate door fronts that offered our monetary merchandise. We anticipate this to develop considerably in 2023 as we ramp up new manufacturers inside our current partnerships.

Transferring on to our lending initiatives. FlexShopper acquired the property of Revolution Monetary, Inc. in December of 2022. This enterprise makes money loans inside 22 bodily areas and 78 digital areas inside Liberty Tax shops utilizing state lending licenses. This diversifies our lending channel to incorporate bricks-and-mortar distribution, which has completely different aggressive yield dynamics versus our present financial institution partnership program.

Along with the lending companies at present offered, there’s a possibility to cross-sell market leasing enterprise to those new prospects. We really feel that this enterprise can present a powerful development channel for us sooner or later as we work to extend the door fronts inside our lending vertical.

As I discussed earlier, we proceed to stay prudent in our underwriting requirements to counteract macroeconomic impacts, regardless that we’re beginning to see some stabilization. Buyer cost charges are bettering sequentially, and we’re seeing an acceleration of this enchancment in Q1 of this 12 months.

Additionally, our determination science workforce continues to implement new underwriting instruments to enhance short- and long-term cost efficiency. Our unhealthy debt reserve methodology for our lease ebook has a lag versus noticed early cost enhancements. And as we proceed to see this development proceed, we anticipate to see our unhealthy debt reserve share enhance from present ranges into 2023. This continues to be depending on present macroeconomic stabilization to proceed, however we’re optimistic of early 2023 efficiency.

I additionally wish to contact on our retail margin enlargement efforts. As we’ve got talked about in earlier calls, we’ve got launched merchandise sourced from distributors and producers to boost buyer profitability through a retail margin along with income from our lending and leasing efforts. These merchandise are complementary to merchandise supplied by our market associate alternatives.

Our steadiness of sale elevated from 5% in Q3 to 9% in This autumn with double-digit steadiness of sale in December. As a reminder, these gross sales generate — typically have a blended retail margin of over 30%, which provides little bit of optimistic unit economics to our market channel. Since these merchandise are offered through a lease, full realization of this margin is acknowledged over 12 months. The P&L affect from this effort will develop into 2023.

Lastly, I wish to thank our workforce members for his or her exhausting work, particularly in mild of the passing of our CEO, Wealthy Home. This was very stunning to all of us right here, particularly for workforce members, together with myself, which have identified and labored with Wealthy with completely different corporations all through our careers. He will likely be missed as his expertise inside this area was important and offered a real differentiator for FlexShopper. Nevertheless, Wealthy constructed a really sturdy workforce throughout his tenure at FlexShopper, so I’m assured that the corporate will prosper the place in — with this workforce in place underneath Russ’ management.

With that, let me flip the decision again to Russ.

Russ Heiser

Thanks, John. In conclusion, as we stay up for the remainder of the 12 months, we stay assured that FlexShopper is positioned to develop via the turbulent atmosphere. The management workforce and the complete firm is concentrated on pursuing the trail that can drive our subsequent section of development. For traders, we’re assured that our adjustments will end in significant EBITDA enchancment versus final 12 months.

With that, we’ll take any questions you may need.

Query-and-Reply Session

Operator

[Operator Instructions] Our first query as we speak is coming from Scott Buck of H.C. Wainwright.

Scott Buck

First, congrats on the promotion into the CEO position. I’m curious, ought to traders anticipate any form of significant change in strategic path? Or is there something within the enterprise that you just suppose wants perhaps a more in-depth have a look at now that you just’re on this place?

Russ Heiser

Certain, Scott. Thanks for the query. We’re taking a deeper dive, as I discussed, into the lease aspect of the enterprise. I believe one of many benefits of getting a direct-to-consumer market is that you just do have this buyer seize versus after they go right into a brick-and-mortar or on-line scenario with their a number of lease-to-own alternatives they may be capable of select from.

So with that benefit in pricing, I believe that there are actually some extra room to make adjustments on our market aspect to seize further return there. So I believe there will likely be a renewed give attention to that aspect of the enterprise, making an attempt to repair return in order that we get the suitable return on capital and skill to bump up gross revenue in that channel.

Scott Buck

Nice. That’s useful, Russ. After which the retail door entrance, I’m curious what the cadence of latest doorways will likely be via 2023. I imply, is this sort of a comparatively even move all year long of including doorways or is it extra chunky?

Russ Heiser

It’s undoubtedly extra chunky, and I believe that is actually simply having to work via the retailer dynamics. Simply as we talked about, this atmosphere is turbulent for our prospects. It’s actually a bit turbulent for these retailers. And for them to give attention to re-assessment and third look financing of their shops isn’t on the high of their listing typically.

The one extension and enlargement that I discussed, that can actually come on pretty rapidly. There are a couple of technological enhancements which might be going into place that I believe will enhance the throughput from a buyer standpoint. So we must always see rise there.

I believe by way of different doorways, we do have further channels which might be bringing them on, and there’s going to be a — one thing that’s slightly bit completely different from what FlexShopper has executed previously. There’s going to be a give attention to extra of the smaller retailers. Up to now, we are inclined to give attention to the enterprise prospects, the very massive chains, et cetera, in order that we may roll out suddenly.

We had talked about earlier than our relationship with a third-party know-how associate, and that can enable us to go after the smaller retailers, and we do plan on pursuing that this 12 months. And I believe that you just’ll see extra within the third quarter a cadence of including new areas that’s extra common and fewer chunky, which is what we see once we give attention to simply the enterprise prospects.

Scott Buck

Okay. Good. That’s useful. After which final one for me. The Revolution enterprise at Liberty Tax, I’m assuming that’s first quarter origination-heavy simply given when these storefronts are lively. Is that correct? Or is there a extra regular move via the 12 months for originations there?

Russ Heiser

On the subject of the standard loans that their — these Liberty Tax prospects could also be taking, they are usually advances on their revenue tax returns. And that’s a part of the enterprise that we’re not concerned in, and that’s the place you’d see the chunkiness to start with of the 12 months or a tax season — tax refund season.

From our perspective, these areas are open 12 months spherical, and our plan is to be lively in supporting their mortgage originations 12 months spherical. So we anticipate it to not be all centered on the primary quarter of the 12 months.

Operator

The following query is coming from Michael Diana of Maxim Group.

Michael Diana

May you give us slightly extra element on the client profile of the — of a Revolution borrower, how that matches in with the client profile of your different companies? Any extra data you may give us about what these loans appear like, length, price, no matter? After which lastly, on the Revolution enterprise, form of what was simply requested, however ought to we see a contribution from that within the first quarter? Or is that going to return out extra within the second quarter?

Russ Heiser

Certain. Let me take the second piece first, after which I’ll hand off the primary query to John Davis. From a contribution perspective, this was a enterprise that was lively and working in these 100 areas. So we’ll proceed to — that can proceed to be mirrored within the first quarter. There are some enhancements by way of underwriting and advertising that I believe ought to do 2 issues. It ought to primarily develop that portfolio inside these 100 areas after which additionally end in improved efficiency.

I believe in terms of speedy development in that enterprise, it’s all about increasing into further storefronts. So whereas there’s some skill to extend the portfolio dimension inside these 100 areas, it’s actually going to be the enlargement to further doorways.

There are a couple of infrastructure enhancements that have to happen to ensure that it to scale simply, and we’re engaged on these now. So actually, within the third quarter, you must begin to see development simply from having that door depend enhance. And that’s how you must give it some thought. So the numbers are included in 1Q — will likely be included in 1Q and going ahead, however the speedy development would be the enlargement to past these 100 shops.

John Davis

And to reply your query on the client profile, in comparison with the FlexShopper lease buyer, I imply there’s some overlap. The purchasers who typically take out loans with Revolution are in all probability on the underside half of our credit score profile compared to our lease buyer. However there are similarities and overlap, which we predict gives alternative for cross-sell into our leased merchandise.

The sorts of loans that the purchasers take range by state. The entire states that we function in have state licenses and are particular to that jurisdiction. However they’ll range from single cost money advances to installment loans, unsecured in addition to secured title loans.

Rates of interest are typically across the identical efficient yield that the lease would cost if it was a lending product. However once more, it’s all based mostly on the state. And as we search for alternatives to increase within the Liberty community, an identical scenario will happen the place we’ll search for geographies which have the appropriate pricing for the chance that we tackle.

Operator

Presently, I’d like to show the ground again over to Mr. Heiser for closing feedback.

Russ Heiser

Thanks once more for all of you that joined our name this morning. Be at liberty to achieve out with any further questions you may need, and we stay up for catching up with you shortly for the 1Q 2023 presentation.

Operator

Girls and gents, thanks on your participation. This concludes as we speak’s occasion. You could disconnect your traces at the moment, and luxuriate in the remainder of your day.