Business Overview
Lendway, Inc. (NASDAQ:LDWY) has undergone a strategic transformation over the past two years, evolving from a provider of in-store advertising solutions to a diversified specialty agriculture and finance company. Through a combination of organic initiatives and strategic acquisitions, Lendway has positioned itself for long-term growth and profitability in two high-potential segments: fresh-cut tulips and non-bank lending.
Lendway was founded in 1995 as an in-store advertising solutions provider, serving retailers across the United States. In August 2023, the company completed the sale of its legacy in-store marketing business for $3.5 million, marking a pivotal turning point in its corporate evolution.
Following the divestiture, Lendway initially planned to refocus its operations on two core business units: Bloomia, a leading producer of fresh-cut tulips in the United States, and a non-bank lending platform targeting the agricultural sector. However, the company's strategic direction shifted in June 2024 when the then-serving Chief Executive Officer resigned. This departure prompted the Board of Directors to reevaluate the company's priorities, as the departing CEO represented nearly all of the company's knowledge and expertise relating to the lending business.
As a result of this reassessment, Lendway decided to focus solely on its agricultural investments, specifically the Bloomia operations. The non-bank lending initiative, which had been launched in April 2023 through the establishment of Farmland Credit, Inc. (FCI) and the hiring of a Senior Vice President of Lending with over 20 years of experience, was subsequently placed on hold.
Bloomia Acquisition and Tulip Operations
In February 2024, Lendway acquired a majority stake in Bloomia B.V., a vertically integrated tulip producer with operations in the United States, Netherlands, South Africa, and Chile. The $53.36 million acquisition was financed through a combination of debt and cash on hand.
Bloomia is a significant producer of fresh-cut tulips, nurturing over 75 million stems annually. The company's revenues for the twelve months ended December 31, 2023 and 2022 were approximately $45 million and $43 million, respectively. Bloomia has established relationships with prominent U.S. mass market retailers, positioning it well to capitalize on the growing demand for fresh-cut flowers.
The tulip business exhibits a seasonal sales pattern, with the first and second calendar quarters typically being the strongest. This seasonality is reflected in Lendway's financial results, with the company generating $31.58 million in revenue and $7.09 million in gross profit for the nine months ended September 30, 2024.
Bloomia's operations involve purchasing tulip bulbs, hydroponically growing tulips from the bulbs, and selling the stems to retail stores. This vertically integrated approach allows for greater control over the production process and quality of the final product.
Non-Bank Lending Platform
In April 2023, Lendway launched its non-bank lending business, Farmland Credit, Inc. (FCI), to provide financing solutions to the agricultural sector. The company hired Randy Uglem, an industry veteran with over 20 years of experience in credit and lending, to lead the new initiative.
FCI and its subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC, were established to purchase existing loans and originate new loans secured by collateral, primarily in the agricultural industry. While the lending business remained in the development stage, Lendway's strategic focus shifted in June 2024 when the company's then-serving Chief Executive Officer resigned.
Faced with the departure of a key leader with significant expertise in the lending space, Lendway's Board of Directors reevaluated the company's priorities and determined that the primary focus would be on the agricultural segment, specifically the Bloomia operations. As a result, the non-bank lending initiative has been temporarily placed on hold as the company concentrates on integrating and growing its tulip business.
Financial Performance
For the nine months ended September 30, 2024, Lendway reported net revenue of $31.58 million, with a gross profit margin of 22%. The company's net loss from continuing operations was $3.54 million, with a net loss attributable to Lendway of $2.80 million, or $1.58 per basic and diluted share.
In the most recent quarter (Q3 2024), Lendway generated revenue of $6.63 million and reported a net loss of $1.13 million. It's important to note that this quarter represents the first full period in which Bloomia's results are included in Lendway's financial statements, making year-over-year comparisons not applicable at this time.
The fresh-cut flower industry, specifically tulips, has seen steady growth in the United States, with a compound annual growth rate (CAGR) of approximately 4-5% over the past five years. This trend bodes well for Lendway's future prospects in the tulip market.
Liquidity
Lendway's financial position remains strong, with $1.33 million in cash and cash equivalents as of September 30, 2024. The company's working capital, defined as current assets less current liabilities, was $11.52 million, providing ample liquidity to support its ongoing operations and strategic initiatives.
To finance the Bloomia acquisition, Lendway entered into a credit agreement that provided an $18 million term loan and a $6 million revolving credit facility, which was later increased to $8 million in October 2024. The company also took on $12.75 million in seller notes payable as part of the acquisition. As of September 30, 2024, Lendway had $37.38 million in total debt outstanding.
The company's current ratio stands at 2.27, indicating a healthy ability to meet short-term obligations. The quick ratio of 0.56 suggests that while the company may face some challenges in meeting immediate liquidity needs, it is not in a critical position.
Challenges and Risks
Lendway faces several key challenges and risks that may impact its future performance:
1. Integration of Bloomia: The successful integration of Bloomia's operations, systems, and personnel will be critical to realizing the anticipated synergies and growth opportunities from the acquisition.
2. Concentration of Revenue: Bloomia's historical revenue has been highly concentrated among a small number of customers, exposing Lendway to potential volatility and operational disruptions.
3. Dependence on Key Personnel: The company's success is heavily dependent on the continued contributions of Bloomia's CEO, Werner Jansen. The loss of Mr. Jansen or other key members of the management team could adversely affect Lendway's ability to execute its business strategy.
4. Regulatory and Legal Risks: As a diversified company operating in both agriculture and finance, Lendway is subject to a complex regulatory environment that could impact its operations and financial performance.
5. Macroeconomic Conditions: Fluctuations in interest rates, commodity prices, and overall economic conditions may affect the demand for Lendway's products and services, as well as the creditworthiness of its lending portfolio.
6. Seasonality: The tulip business exhibits strong seasonality, with the first and second quarters typically being the strongest. This cyclical nature of revenue may present challenges in managing cash flow and operations throughout the year.
Outlook and Conclusion
Lendway's strategic shift towards specialty agriculture and finance has positioned the company for long-term growth and value creation. The successful integration of Bloomia and the continued development of the non-bank lending platform (when resumed) will be critical to the company's future success.
While the company faces several challenges, Lendway's strong financial position, experienced management team, and focus on high-potential market segments provide a solid foundation for sustainable performance. The company's decision to concentrate on the agricultural business, particularly the Bloomia operations, demonstrates a clear strategic focus that aligns with market trends and growth opportunities in the fresh-cut flower industry.
As Lendway navigates this transitional period, investors will be closely monitoring the company's ability to capitalize on the opportunities within the fresh-cut tulip sector. The steady growth of the tulip market in the United States, coupled with Bloomia's established relationships with prominent mass-market retailers, positions Lendway well for future success.
The company's financial performance in the coming quarters will be crucial in assessing the effectiveness of its strategic pivot and the potential for long-term value creation. With a strong liquidity position and access to additional credit facilities, Lendway appears well-equipped to support its growth initiatives and weather potential challenges in the near term.
As Lendway continues to refine its operations and potentially revisit its non-bank lending ambitions in the future, stakeholders will be watching closely to see how the company leverages its unique position in the specialty agriculture market to drive sustainable growth and profitability.