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Earnings call: FlexShopper reveals robust Q4 growth and strategic expansions

EditorNatashya Angelica
Published 04/02/2024, 03:19 PM
© Reuters.

In the fourth quarter of 2023, FlexShopper (NASDAQ:FPAY) (FP) delivered a strong financial performance with significant improvements across various metrics. The company reported a 7% increase in total fundings and a substantial rise in net lease and loan revenues, which went up by 42%.

Gross profit soared by over 300%, and operating income reached $5.6 million, marking a dramatic turnaround from the $5.5 million loss seen in the previous year.

FlexShopper is evolving its business model, transitioning its website into a comprehensive retail platform while broadening payment options and merchandise selection. The company also announced a new credit facility and strategic partnerships aimed at expanding its market presence and sustaining profitable growth into 2024.

Key Takeaways

  • Total fundings rose by 7%.
  • Net lease and loan revenues increased by 42%.
  • Gross profit escalated by over 300%.
  • Operating income hit $5.6 million, compared to a $5.5 million loss last year.
  • The company is transitioning to a retail platform with diverse payment options.
  • A new credit facility was secured, enhancing funding to $150 million.
  • Asset quality improved, and bad debt was reduced through tighter underwriting and risk modeling.
  • Storefronts grew by 51% year-over-year, with a 50% increase projected for 2024.
  • FlexShopper launched a strategic partnership in the tire industry, anticipating a significant storefront boost.
  • The company is investing in leadership, technology, and fraud prevention.
  • Marketing spend for the online channel is expected to more than double by year-end.

Company Outlook

  • FlexShopper is focusing on sustainable, profitable growth.
  • A mix of 45% online and 55% retail customers is expected for new acquisitions.
  • Overall customer distribution is projected to be two-thirds online and one-third retail.

Bearish Highlights

  • The company did not highlight any specific challenges or setbacks during the call.

Bullish Highlights

  • FlexShopper is expanding into new locations and product verticals.
  • The transition to a retail platform with additional payment options is underway.
  • A new credit facility with better terms signifies financial stability and growth potential.


  • There were no reported misses in the earnings call.

Q&A Highlights

  • Russ Heiser discussed retail strategy and expansion, noting the addition of 720 store locations since the end of 2023.
  • A partnership with a company that has 1,600 locations is expected to further increase the storefront count.
  • A pilot program in Tampa is aimed at increasing lease throughput.
  • The team's hard work was acknowledged, and optimism was expressed for the upcoming quarter.

FlexShopper's Q4 results reflect a company in the midst of positive transformation and growth. With its strategic shift towards a diversified retail platform and the expansion of its leasing options, FP is positioning itself for continued success in the competitive consumer financing market.

The company's proactive approach to asset quality and fraud prevention, coupled with its investment in technology and leadership, suggests a forward-thinking management team committed to long-term profitability and market expansion.

As FlexShopper gears up for an anticipated increase in marketing spend and customer acquisition, stakeholders may watch closely to see if the company can sustain its momentum through 2024 and beyond.

InvestingPro Insights

FlexShopper's recent financial performance has shown a company on the rise, with substantial improvements in revenue and profitability. However, the InvestingPro insights paint a more nuanced picture of the company's financial health and future outlook:

InvestingPro Data metrics indicate a mixed financial landscape for FlexShopper. The company's Market Cap stands at $25.12M, reflecting its current valuation within the market. Despite the positive performance in the last quarter, FlexShopper is trading at a negative P/E Ratio of -15.26, which can signal that investors are expecting lower earnings in the future.

Nonetheless, the company has shown a remarkable Gross Profit Margin of 89.71% over the last twelve months as of Q3 2023, highlighting its ability to retain a significant portion of revenue after accounting for the cost of goods sold.

InvestingPro Tips suggest that while FlexShopper has had a high return over the last year, analysts are cautious about the company's profitability in the near term. They do not anticipate the company will be profitable this year, and net income is expected to drop.

This is corroborated by the company's recent Price / Book multiple of 5.08, which is considered high and may indicate that the stock is overvalued relative to its net assets. Additionally, despite the lack of dividend payments to shareholders, FlexShopper's liquid assets exceed its short-term obligations, providing some financial stability.

For readers looking to delve deeper into FlexShopper's performance and future prospects, InvestingPro offers additional insights. There are 9 more InvestingPro Tips available that can help investors make more informed decisions. To access these tips and benefit from the full range of data and analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/FPAY.

FlexShopper's journey towards becoming a comprehensive retail platform is certainly ambitious, and the InvestingPro insights suggest that while the path ahead may have its challenges, the company's recent performance and strategic initiatives position it as a potential player to watch in the evolving consumer financing market.

Full transcript - FlexShopper Inc (FPAY) Q4 2023:

Operator: Greetings. Welcome to the FlexShopper 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. [Operator Instructions] 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 FlexShopper’s fourth quarter 2023 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. 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. 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 10-K for the year ending December 31, 2023. 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 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 to 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. This 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.

Russ Heiser: Thank you, Carlos, and thanks to everyone joining us this morning. We're excited to discuss our fourth quarter performance and provide some insights into the first quarter of 2024. Overall, the fourth quarter continued the financial progress from prior periods. Comparing 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%, gross profit was up over 300% and operating income was a positive $5.6 million compared with an operating income loss of $5.5 million. And then moving on to 2023 full year results, see a similar pattern. Total fundings were up 8% versus the prior year. Net lease and loan revenues were up 3% and 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. Despite all these financial improvements, the hallmark of the fourth quarter was the work going on behind the scenes. As we mentioned on the last call, we are continuing to transition our flexshopper.com business significantly. What was traditionally an online lead generator for lease-to-own transactions, it’s now transitioning into a retail platform with other payment options for consumers in addition to FlexShopper's lease-to-own product. In the first quarter of 2024, there will be a new line on our income statement reflecting revenue from goods sold on flexshopper.com that were not funded by us. Since February, we have been selling merchandise on our site that was funded via a payment option that was not a FlexShopper lease. The average margin on the products was approximately 23%. More importantly, it means that we are making more wholesale profit per day on flexshopper.com and we're spending on daily marketing. Our next steps are fourfold. First, we will continue to add additional payment options to flexshopper.com so that almost every visitor can find a payment option that fits their credit profile. Whether it's a prime consumer looking for a 12-month deferred interest offering or a near-prime customer looking for pricing lower than our traditional lease-to-own product. As we have mentioned previously on these calls, we were monetizing less than 1% of the unique visitors to our site. More payment options lets us monetize the visitors that are already coming to flexshopper.com. Second, we will continue expanding the number of SKUs on our site, 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 follow a no inventory dropship model. Therefore, our merchandising team is adding manufacturer, distributor and shipping partners that broaden our reach into the higher-margin appliance, furniture and specialty goods markets that complement our traditionally strong electronics presence. Third, given that the margins on goods sold via other payment options or leased from FlexShopper per day is greater than our daily marketing spend, we are continually or prudently and cost effectively increasing our marketing spend. This will allow us to grow not 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. 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 FlexShopper ecosystem Using Generative AI, the goal is to quickly expand beyond the legacy flexshopper.com marketplace experience to create streamlined sites for expediting item purchases and lease fulfillments. Our first was focused on gaming computers and consoles that is a core competency. The micro sites launched this year will range from jewelry to furniture and over time represent all of the primary verticals for leasable goods. Moving past the digital marketplace, FlexShopper continues to roll out the lease offering into new locations. Since the end of 2023, we have expanded into an additional 720 units through today with additional 580 more planned through the middle of May. And of course, further opportunity lies in improving the in-store leasing process with our current retailer partners. With another long-term partner, we're exploring how we can originate more leases together, and are piloting an improved leasing and checkout process in a subset of locations that is currently sustaining an over 200% improvement in lease through rates. After a bit more refinement in testing, we plan on rolling out the improved process into approximately 1,600 stores by the end of the summer. Finally, before I hand off the call to our COO, I want to mention the 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 cost by 2% per year. I'll now hand the call over to John Davis to dive into the company's fourth quarter performance.

John Davis: Thanks, Russ. As we have discussed in previous quarters, we have been focused on improving asset quality, rolling out our retail margin strategy on our flexshopper.com marketplace and to grow the business. I'm pleased on our progress on all these fronts. FlexShopper adjusted EBITDA was $23.2 million for 2023 versus minus $536,000 in 2022, which was 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. 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. 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 in our online marketplace with higher retail margins. This margin when originated through FlexShopper lease agreement is recognized over the life of the lease. The resulting financial benefit shows up on our P&L via cost of merchandise sold. The cost of merchandise sold as a percentage of lease revenue is 42.8% for full year 2023 versus 47% in 2022 and 39.9% in Q4 of '23 versus 44.7% in Q4 of 2022. This was a $3 million benefit in Q4 of this year versus last year. As Russ was mentioning earlier, in Q1 of 2024, we launched a new initiative to offer alternative partner payment solution options on flexshopper.com to broaden our reach to a wider set of customers, both above and below our current credit segment served by the FlexShopper lease. With our expanding retail margins on products offered online, any additional sales from existing website traffic are immediately accretive. A large percentage of our current website traffic does not convert today due to the client applicants or non-spenders looking for a better deal. By offering a broader range of payment solutions, we expect to increase website sales, which will result in higher retail margin that is immediately recognized and received. For the first two months that we have been offering other payment options, we have sold an additional approximately $750,000 on our marketplace 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 to our website, which will also have a halo effect on lease originations. As we continue to look to improve conversion, we are increasing the investment into Generative AI content creation targeted response models that will identify the most relevant product and payment solutions for a customer and a wider selection of products that have a broader appeal to our potential customers. In regards to our efforts on asset quality, we have made significant strides on underwriting and front improvements over 2023. Full year lease bad debt as a percentage of lease revenue was 32.2% for 2023 versus 37.1% in 2022. For Q4 2023, this was 30.9% versus 40.2% in Q4 of last year. This was a $4.4 million benefit in Q4 this year versus last year, which is a 30% year-over-year reduction in bad debt. Numerous new strategies have been deployed over the course of 2023, and this work is ongoing. Coming out of higher price inflation in 2022, we tightened our underwriting policy to control asset quality, which resulted in lower lease originations. 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. 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 loans. 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. Our partnership point-of-sale lease channel also continues to experience growth. We have launched a new strategic partner in the tire space in Q1 of 2024, which is expected to significantly increase the storefront count, offering FlexShopper payment solutions, and we continue to expand within our existing partner networks, as they expand their various footprints. As of December 31, 2023, we saw a 51% year-over-year increase in store fronts, and our current rollout pipeline suggests an estimated growth of an additional approximately 50% this year. We are also expecting growth from other retailer websites that offer FlexShopper leases via credit waterfall partnerships. Our goal is to provide a platform of sustainable and profitable growth. We have heavily invested in a strong leadership team, a robust technology stack, making the use of the latest tools available to the marketplace and the continuous focus and investment on asset quality and fraud prevention. I am pleased with what FlexShopper accomplished in 2023, and we are poised to continue this momentum in 2024. I would like to also thank our team members who have worked very hard over the past year to achieve these results. With that, let me turn the call back to the operator for Q&A.

Operator: [Operator Instructions] Our first questions come from the line of Scott Buck with H.C. Wainwright. Please proceed with your questions.

Scott 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?

Russ Heiser: Sure. So as we've mentioned in the past, Scott, there tends to be some seasonal changes that always occur as we come into this tax refund season we always see the lighter demand at the beginning of the year. 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 -- in 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 a number of providers below us 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 visitor to the site that is interested in lease-to-own have some of those visitors that may not necessarily fit our criteria, blow down to others. So generally across the board, we've essentially been tightening, but not so much in corresponsive to what we've seen from a consumer perspective, but more based upon what we want to achieve from an asset level perspective.

Scott Buck: Great. That's helpful. On the other payment options on the site, I'm curious, are you adding items that would not typically be leasable that people can now pay for outright? Or are we not seeing, I guess, that kind of shift in inventory?

Russ Heiser: No, we're not seeing that type of shift yet. That might be something we look at down the road. Given that FlexShopper historically has had a $3,000 spending limit cap, what we're really focused on now is bringing in goods that furniture goods, home goods, et cetera, that extend beyond that $3,000 cap to really line up with other payment options. Like there's a lot to fill in from that perspective first, especially given the dynamics of drop shipping and especially when it comes to large parcel or LTL shipping for some of these item types. once we've sorted through some of these other pieces, I think there is an opportunity to move into some of those other goods that aren't traditionally leasable, I think complementary warranties and other things that can be layered on top that aren't traditionally leasable. I think there's a lot more room to grow, but we're just starting with the different sectors we walked through and higher-priced items than what we've traditionally had.

Scott Buck: Great. That's helpful. And then last one for me. Can you remind us what the typical lag is between opening up a new storefront location versus when you actually start to see some meaningful revenue contribution?

Russ Heiser: Sure. So the dynamic first starts with whether 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 speeds up the process. This most recent rollout that's taking place, we're replacing another non-prime product. So it's a little bit easier adoption plan. There's always the training and different online incentive portals that are necessary to get the retailer up to speed. But given that the -- 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. Then of course, we have the lease-to-own lag that takes a while to recognize revenue. But from an originations perspective, we should get there. Certainly, by the end of the summer, we should be full steam on this most recent rollout.

Scott Buck: Great. I appreciate the added color, and congrats again on the results.

Russ Heiser: Thanks, Scott.

John Davis: Thank you.

Operator: There are no further questions -- sorry, our next questions come from the line of Michael Diana with Maxim Group. Please proceed with your questions.

Michael Diana: Okay. Thank you. Russ, could you go over -- you mentioned on your retail strategy, 720, another 580, eventually 1,600, what exactly do those numbers refer to? What is the strategy in those?

Russ Heiser: Sure. So in terms of the store count, so since the end of 2023, we've rolled out into additional 720 store locations. And these are locations where we're the exclusive lease-to-own provider and they're in the automotive segment, goods and services segments. We've done 720 through today. There's another almost 600, 580, that will continue to -- we'll continue to roll out in those locations.

Michael Diana: Okay. And the 1,600 is -- I think improve pricing or something...

Russ Heiser: We already have a partner that has about 1,600 locations. This is where we're working together with them to find a 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 lease throughput is up a little more than double what we experienced previously. So this is just a -- an easier consumer experience tied in closer to the point-of-sale systems, et cetera. So we're excited to continue to work and refine the technology there and then eventually essentially re-roll out into those -- that partner 1,600 stores. Hopefully, achieving the same results we have in the pilot, which is a doubling of originations.

Michael Diana: Okay. And then when -- like year-end 2024 as far as relative contribution goes between your flexshopper.com website, the retail, what would be the order of contribution among those strategies would you think?

Russ Heiser: Sure. So given what we're seeing on the online site and the ability to increase marketing spend because we have this high margin on goods, and we've added these other payment providers, we expect marketing spend in that channel, which is offset by the wholesale margin, but we expect that to more than double by the end of the year on a cumulative basis, to the same extent we feel like, we call it, the non-marketplace, the retailer model given this extra store rollout, given some of these new initiatives, we'll 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 -- new FlexShopper customer perspective, I expect it to be about 45% online and 55% retail. From a total customer perspective, as we mentioned before, the retailer customer doesn't repeat quite as much, we expect it to be more two-thirds online, one-third retailer.

Michael Diana: Okay, great. That's very helpful. Thanks a lot.

Russ Heiser: Thanks, Michael.

Operator: 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.

Russ Heiser: We appreciate everyone dialing in this morning. I want to thank the team here at FlexShopper for all their hard work over the past quarter, the results generated, and we look forward to another great quarter.

Operator: 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.

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