FlexShopper Inc. (FPAY) is a leading national online lease-to-own (LTO) retailer and payment solution provider that has been at the forefront of innovative financial services for underserved consumers. With a rich history spanning over a decade, the company has steadily evolved to address the growing demand for flexible and accessible payment options in the e-commerce and retail space.
Company History and Evolution
Established in 2006, FlexShopper initially focused on developing its proprietary LTO platform, which automated the process of consumers receiving spending limits and entering into leases for durable goods within seconds. This pioneering technology has been a key driver in the company’s growth, allowing it to seamlessly integrate its payment solutions into the e-commerce and retail environments of its partners.
In January 2015, FlexShopper entered into a credit agreement that provided the company with additional funding to expand its LTO operations. This move allowed the company to accelerate its growth and strengthen its market position. Over the next several years, FlexShopper concentrated on developing both its B2C and B2B sales channels, enabling consumers to acquire products through its online marketplace and through integrations with e-commerce partners.
The company’s expansion into consumer lending in 2021 marked a significant milestone in its diversification strategy. However, this venture faced a setback in 2023 when the initial bank partner decided to exit the high APR business, necessitating the onboarding of a new bank partner for the loan program. Despite this challenge, FlexShopper remained committed to offering a diverse range of financial solutions to meet the evolving needs of its customer base.
Market Challenges and Adaptations
Throughout its history, FlexShopper has encountered various macroeconomic challenges, including periods of deteriorating credit performance during times of high inflation and reduced consumer savings. In response, the company has continuously worked to enhance its underwriting and collections processes, demonstrating its ability to adapt to changing market conditions.
Financials
FlexShopper’s financial performance has shown significant improvement in recent periods. For the fiscal year 2023, the company reported revenue of $116.98 million, with a net loss of $4.23 million. Operating cash flow (OCF) was negative $6.66 million, and free cash flow (FCF) was negative $13.00 million.
The third quarter of 2024 marked a transformative period for the company. Total revenue for the quarter reached a record $38.59 million, representing a 22.9% increase year-over-year. This growth was primarily driven by a 34.5% increase in net lease revenues, as well as the addition of $1.18 million in retail revenues. The increase in net lease revenues was due to a 16.4% increase in gross lease billings and fees, combined with a 19.5% decrease in the provision for doubtful accounts.
Net income for Q3 2024 was $2.37 million, a significant improvement from the previous year. However, OCF remained negative at $7.89 million, and FCF was negative $9.57 million. Adjusted EBITDA reached a record $12.2 million, a 45% increase compared to the same period in the prior year.
For the nine months ended September 30, 2024, net lease revenues were $81.27 million, up 18.3% from the same period in 2023. The provision for doubtful accounts relative to gross lease billings and fees decreased from 32.8% in the first nine months of 2023 to 23.9% in the same period of 2024, indicating improved collection performance.
Business Expansion Strategies
One of the key drivers behind FlexShopper’s success has been its focus on expanding its B2B channel. The company has partnered with numerous payment platforms and retailers, integrating its LTO solutions into their payment waterfalls. As a result, the company’s signed store count has increased by approximately 250% from the end of 2023, reaching over 7,800 locations.
In addition to its B2B initiatives, FlexShopper has also made strides in growing its B2C marketplace, FlexShopper.com. The company has added new capabilities that allow customers on its website to receive payment options that fit their credit profile, and it has also expanded the product assortment available for sale. These efforts have resulted in a steady increase in retail revenue, which grew from $780,000 in the first quarter of 2024 to $1.2 million in the third quarter.
Liquidity
FlexShopper’s financial position has been strengthened by its recent actions. The company has entered into a new credit agreement, providing it with additional borrowing capacity and more favorable terms. As of September 30, 2024, FlexShopper had a debt-to-equity ratio of 4.97 and cash holdings of $7.33 million. The company has access to a $150 million credit facility, of which $131.42 million was outstanding at the end of Q3 2024.
The company’s current ratio stands at 7.98, with a quick ratio of 6.69, indicating a strong ability to meet short-term obligations. Moreover, FlexShopper has the opportunity to redeem 91% of its Series 2 Preferred Stock at a significant discount, which could result in an approximately $23 million ($1 per share) transfer of equity value to its common shareholders.
Product Segments
FlexShopper operates three main product segments:
Bank Partner Loan Model: Launched in 2021, this segment offers unsecured consumer loans through a bank partner. FlexShopper provides technology, marketing, underwriting, and servicing capabilities. Net loan revenues from this model were $5.58 million for the first nine months of 2024, down from $10.64 million in the prior year period due to the exit of the previous bank partner.
Direct Origination Loan Model: Initiated in late 2022 following the acquisition of Revolution Financial, Inc.’s assets, this model allows FlexShopper to directly originate consumer loans in 11 states. Net loan revenues from this model were $14.12 million for the first nine months of 2024, up from $7.36 million in the prior year period.
Additionally, FlexShopper launched a new initiative in Q1 2024 to offer alternative lender payment options on the FlexShopper.com marketplace, generating $3.33 million in retail revenues in the first nine months of 2024.
Challenges and Competitive Landscape
Despite the company’s impressive growth and strategic initiatives, it is not without its challenges. FlexShopper has faced increased competition in the LTO and consumer lending space, as well as macroeconomic headwinds that have impacted consumer spending and credit quality. However, the company’s diversified business model, innovative technology, and experienced management team have positioned it well to navigate these obstacles.
Future Outlook
Looking ahead, FlexShopper remains focused on executing its growth strategies, which include further expansion of its B2B channel, continued enhancement of its B2C marketplace, and the potential acquisition of complementary businesses. The company expects retail revenue to continue increasing over the coming quarters as they expand marketing spend to drive traffic and conversion on the FlexShopper.com marketplace. Management also anticipates continued growth in their lease and loan business with favorable asset performance and online retail opportunities.
While specific guidance numbers are not provided, FlexShopper believes that 2024 is shaping up to be a transformative year as their growth strategies take hold. The company’s commitment to innovation and its ability to adapt to changing market conditions suggest that it is well-positioned to capitalize on the significant opportunities in the underserved consumer finance market.
In conclusion, FlexShopper’s transformative journey over the past decade has positioned it as a key player in the evolving payments landscape. With its diverse range of financial services, strategic partnerships, and a strong focus on innovation, the company is poised to continue delivering value to its shareholders and transforming the way underserved consumers access financial solutions. The LTO and consumer lending industries have seen consistent growth, with a CAGR of around 5-7% over the past 5 years, and FlexShopper is well-positioned to capitalize on these industry tailwinds through its multichannel distribution and diversified product offerings.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.