FlexShopper Inc. (NASDAQ:FPAY) is a prominent national online lease-to-own retailer and payment solutions provider that has undergone a remarkable transformation in recent years. The company's innovative platform and strategic initiatives have positioned it as a industry leader, poised for continued growth and profitability.
Business Overview and History FlexShopper was incorporated in 2006 as a holding corporation with no operations except those conducted by its subsidiaries. In January 2015, the company entered into a credit agreement and organized two wholly owned subsidiaries, FlexShopper 1 LLC and FlexShopper 2 LLC, to conduct its lease-to-own (LTO) operations. The company's core business model revolves around providing LTO options for consumers seeking access to a wide range of durable goods, including electronics, furniture, appliances, and more.
FlexShopper, LLC, the company's main operating subsidiary, provides durable goods to consumers on a lease-to-own basis. After receiving a signed consumer lease, FlexShopper then funds the leased item by purchasing it from a merchant partner and leasing it to the consumer. FlexShopper, LLC also sells products to other lenders that offer finance options on its website.
In 2015, FlexShopper launched its proprietary LTO payment technology, which automates the process of consumers receiving spending limits and entering into leases within seconds. This technological edge has been a key driver of the company's success.
Over the years, FlexShopper has expanded its offerings beyond its initial LTO focus. In 2021, the company began offering an unsecured consumer loan product through a partnership with a third-party bank. Under this program, FlexLending, LLC purchases a participation interest in each of the loans originated by the bank partner. This allowed FlexShopper to leverage its marketing, underwriting and servicing expertise without needing to use its own capital.
In late 2022, FlexShopper took a significant step forward by acquiring the assets of Revolution Financial, Inc. This acquisition facilitated the creation of a direct origination model for consumer loans in 11 states, allowing the company to leverage its expertise in underwriting, marketing, and servicing to serve a broader customer base. The acquisition also provided FlexShopper with 22 leased storefront locations and program agreements with 78 additional brick-and-mortar locations.
Throughout its history, FlexShopper has faced various challenges, including regulatory inquiries and litigation, as well as the impact of deteriorating macroeconomic conditions and reduced government stimulus on its customers' ability to make payments. The company has worked to navigate these challenges by investing in its underwriting technology, risk analytics platform, and customer service capabilities.
Financial Performance and Ratios FlexShopper's recent financial performance has been impressive, with the company reporting record quarterly results in Q3 2024. For the nine months ended September 30, 2024, the company reported total revenues of $104.29 million, a 20.3% increase compared to the same period in 2023. Gross profit for the period was $56.28 million, resulting in a gross profit margin of 54%.
The company's adjusted EBITDA for the nine-month period was $24.64 million, a 63.4% increase year-over-year. This strong profitability is reflected in FlexShopper's financial ratios, with a current ratio of 7.98, a quick ratio of 6.69, and a debt-to-equity ratio of 5.02.
In the most recent fiscal year (2023), FlexShopper reported annual revenue of $116.98 million, with a net loss of $4.23 million. The company's annual operating cash flow was -$6.66 million, and annual free cash flow was -$12.99 million.
For the third quarter of 2024, FlexShopper reported revenue of $38.59 million, representing a 22.9% growth compared to Q3 2023. Net income for the quarter was $2.37 million, a significant 151.7% increase year-over-year. The company's performance in Q3 2024 exceeded their internal expectations, with total revenue reaching a quarterly record of nearly $39 million and adjusted EBITDA increasing by 45% to a quarterly record of more than $12 million.
Liquidity Despite the challenges posed by the macroeconomic environment, FlexShopper has demonstrated its ability to maintain a healthy balance sheet and generate robust cash flow. The company's operating cash flow for the nine months ended September 30, 2024 was $23.79 million, while free cash flow was -$6.23 million, reflecting the company's strategic investments in growth initiatives.
As of September 30, 2024, FlexShopper had $7.33 million in cash and was able to borrow up to $150 million under its 2024 Credit Agreement, subject to a borrowing base. The credit agreement has a commitment termination date of April 1, 2026. The company's strong liquidity position is further evidenced by its current ratio of 7.98 and quick ratio of 6.69.
Growth Strategies and Initiatives FlexShopper's success can be attributed to its multi-pronged growth strategy, which focuses on expanding its reach in both the direct-to-consumer (DTC) and business-to-business (B2B) channels.
In the DTC segment, the company has been actively enhancing its Flexshopper.com marketplace by introducing new payment options and expanding its product assortment. The addition of alternative financing solutions, such as offerings for customers with higher credit scores, has broadened FlexShopper's addressable market and driven increased traffic and sales on the platform. During the first quarter of 2024, FlexShopper launched a new initiative to offer alternative lenders payment options on the Flexshopper.com marketplace, further expanding its reach to a wider set of customers.
On the B2B front, FlexShopper has forged strategic partnerships with leading payment platforms and retailers, enabling it to provide its innovative LTO solutions to a growing network of merchant partners. The company has successfully signed up approximately 7,800 retail locations as of September 30, 2024, a 250% increase from the end of 2023. This rapid expansion has been a key driver of the company's lease funding approval growth, which increased by 33% year-over-year in Q3 2024.
Additionally, FlexShopper has made significant investments in its internal underwriting, collections, and account servicing capabilities, helping to drive improvements in asset quality and profitability. The company's provision for doubtful accounts as a percentage of gross lease billings and fees improved from 32.1% in Q3 2023 to 22.2% in Q3 2024, a 990 basis point improvement.
Product Segments and Diversification FlexShopper operates through three main sales channels: the online FlexShopper.com marketplace, utilizing its LTO payment method at checkout on partner e-commerce sites, and facilitating LTO transactions with retailers in their physical locations. The company's LTO business has been the primary driver of its growth, providing consumers with an alternative financing option for acquiring brand-name merchandise.
In addition to its core LTO business, FlexShopper has expanded into the consumer loan market. The company began offering an unsecured consumer loan product through a bank partner origination model in 2021, where the bank partner underwrites, approves, and funds the loans, while FlexShopper provides the technology, marketing, and servicing capabilities. This expansion allows FlexShopper to offer loans in retailer channels that provide services in addition to durable goods, as well as in states that do not have lease purchase agreement regulations.
The acquisition of Revolution Financial, Inc.'s assets in late 2022 further enhanced FlexShopper's capabilities, enabling the creation of a direct origination model for consumer loans in 11 states. Under this model, applicants who apply and obtain a loan through FlexShopper's platform are underwritten, approved, and funded directly by the company.
FlexShopper's diversified product offerings have contributed to its strong financial performance. Lease revenues and fees increased from $68.70 million in the first nine months of 2023 to $81.27 million in the first nine months of 2024, representing an 18.3% year-over-year increase. This growth was driven by an increase in lease origination volume and higher average origination values per lease. Similarly, loan revenues and fees, net of changes in fair value, grew from $18.00 million to $19.69 million over the same period, a 9.4% increase primarily due to updates in the company's estimates of expected losses and servicing costs for its loan receivables portfolio.
Risks and Challenges While FlexShopper has demonstrated impressive growth and resilience, the company is not without its risks and challenges. The highly competitive nature of the lease-to-own and consumer finance industries, as well as the potential for regulatory changes, could impact the company's operations and profitability.
Additionally, FlexShopper's reliance on partnerships and integrations with third-party platforms and retailers introduces a degree of operational risk, as disruptions or changes in these relationships could affect the company's growth prospects.
The company's ongoing intellectual property protection efforts, including the recently filed patent infringement lawsuits against competitors, also carry inherent uncertainties and legal risks that could weigh on the company's resources and financial performance.
Outlook and Conclusion FlexShopper's recent performance and strategic initiatives have positioned the company for continued growth and success. The company's diversified business model, innovative technology, and focus on expanding its reach in both the DTC and B2B channels have enabled it to navigate the challenging macroeconomic environment and capitalize on evolving consumer preferences.
While FlexShopper does not provide specific numerical guidance, management believes that 2024 is shaping up to be a transformative year as their growth strategies take hold. The company expects retail revenue on Flexshopper.com to continue increasing over the coming quarters as they expand marketing spend and add more product categories. FlexShopper also anticipates announcing new payment platform and retail partnerships in the coming months.
With a strong balance sheet, improving profitability, and a robust pipeline of growth opportunities, FlexShopper appears well-positioned to maintain its momentum and solidify its position as a transformative leader in the lease-to-own and payment solutions space. As the company continues to execute on its strategic priorities, investors can look forward to witnessing FlexShopper's ongoing evolution and potential for long-term value creation.