Business Overview and History Lendway, Inc. is a specialty agricultural company that has evolved from its previous focus on in-store advertising solutions. In August 2023, the company completed the sale of its legacy In-Store Marketing Business, marking a pivotal shift in its strategic direction.
The company's current primary operations center around Bloomia, a leading producer of fresh-cut tulips that Lendway acquired in February 2024. Bloomia, founded in the Netherlands, has established a strategic presence in the United States, Netherlands, South Africa, and Chile. The company's tulip business tends to be highly seasonal, with the first and second quarters typically being the strongest sales periods.
Lendway, Inc. was originally founded in 2018 as a specialty agricultural company focused on making and managing agricultural investments in the United States and internationally. The company initially planned to develop a non-bank lending business through its wholly owned subsidiary, Farmland Credit, Inc. (FCI). However, this division remained in development as the company shifted its focus.
The acquisition of Bloomia on February 22, 2024, was a major milestone for Lendway as it pivoted to focus solely on the agricultural business. Bloomia is a leading producer of fresh cut tulips in the United States, nurturing over 75 million stems annually. This strategic move significantly expanded Lendway's presence in the agricultural sector.
Following the departure of the company's then-serving Chief Executive Officer in June 2024, the board of directors decided to focus solely on the agricultural business, as the lending operations remained in the development stage and the departing CEO represented the majority of the company's expertise in that area.
Financial Performance and Liquidity Lendway's financial performance has been mixed in recent years. For the fiscal year ended December 31, 2023, the company reported net income of $10.05 million, a significant improvement from the net loss of $3.53 million reported in the prior year. This turnaround was largely driven by the gain from the sale of the In-Store Marketing Business.
The company's liquidity position has also fluctuated. As of December 31, 2023, Lendway had $14.52 million in cash and cash equivalents, up from $7.13 million at the end of 2020. However, the acquisition of Bloomia in February 2024 has significantly impacted the company's cash balances, which had declined to $1.33 million as of September 30, 2024.
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 recently increased to $8 million. As of September 30, 2024, the company had $37.38 million in total debt, including the term loan, notes payable to the Bloomia sellers, and a short-term machinery financing loan. Lendway's debt levels have raised concerns about its ability to service these obligations, particularly given the seasonality of its tulip business.
For the most recent quarter ended September 30, 2024, Lendway reported revenue of $6.63 million and a net loss of $1.13 million. The company's operating cash flow was negative $5.92 million, and free cash flow was negative $6.61 million. This represents a year-over-year decrease in revenue, net income, operating cash flow, and free cash flow, primarily due to the Bloomia acquisition and increased operating expenses associated with integrating the new business.
The company's debt-to-equity ratio stands at 3.04, indicating a significant level of leverage. Lendway's current ratio is 2.27 and quick ratio is 0.56, suggesting adequate liquidity to cover short-term obligations, although the quick ratio indicates potential challenges in meeting immediate liabilities without relying on inventory sales.
Operational Challenges and Risks The integration of Bloomia has not been without its challenges. Lendway has experienced significant delays in completing required SEC filings, primarily due to acquisition-related integration issues. The company has taken steps to address these problems, including the hiring of a new Chief Financial Officer, but the long-term impact of these challenges remains to be seen.
Another key risk facing Lendway is the concentration of Bloomia's historical revenue among a small number of customers. This customer concentration could expose the company to significant revenue volatility if it were to lose one or more of these major clients.
Furthermore, Lendway's reliance on a limited number of key employees, particularly in the Bloomia business, poses a risk to the company's operational continuity. The departure of critical personnel, such as Bloomia's CEO, could have a material adverse effect on the company's ability to execute its growth strategy.
Transformation and Growth Initiatives Despite the challenges, Lendway is pursuing an ambitious growth strategy centered around the Bloomia acquisition. The company aims to leverage Bloomia's strong market position and relationships with prominent U.S. retailers to drive further expansion in the fresh-cut tulip market.
To support this growth, Lendway has invested in upgrading Bloomia's production capabilities and exploring opportunities to expand its geographic footprint. The company is also focused on diversifying its customer base and exploring new sales channels to mitigate the risks associated with its current customer concentration.
Lendway's management team, co-led by Mark Jundt and Daniel Philp, is tasked with navigating the complexities of the post-acquisition integration and positioning the company for long-term success. The company's ability to execute its growth strategy, address operational challenges, and manage its debt load will be critical in determining its future trajectory.
Business Segments and Performance Lendway now operates primarily through its Bloomia acquisition, which has become the company's main revenue driver. Bloomia purchases tulip bulbs, hydroponically grows tulips from the bulbs, and sells the stems to retail stores. For the three and nine months ended September 30, 2024, Bloomia contributed $6.63 million and $31.58 million in revenue, respectively, to Lendway's consolidated results.
Gross profit for Bloomia was $1.44 million, or 22% of revenue, for the three months ended September 30, 2024, and $7.09 million, or 22% of revenue, for the nine months ended September 30, 2024. The higher gross margins in the first and second quarters are typically due to the seasonally higher sales volumes allowing better leverage of fixed costs.
The tulip sales business is highly seasonal, with the first and second calendar quarters being the strongest sales quarters. Accounts receivable and inventory balances are at their lowest levels in the summer following the strong spring sales season, while inventory balances peak prior to the spring season.
Lendway's former lending business, which was planned to be developed through its subsidiary Farmland Credit, Inc. (FCI), has been discontinued following the departure of the company's CEO in June 2024. This change is not expected to have a significant adverse impact on Lendway's operations or financial results.
Market Position and Industry Trends Lendway, through Bloomia, has established a strong position in the fresh-cut tulip market, particularly in the United States. The company has relationships with prominent U.S. mass market retailers and is strategically positioned in the United States, Netherlands, South Africa, and Chile.
The fresh cut flower industry, including tulips, has seen modest growth in recent years, with a compound annual growth rate (CAGR) of approximately 3-5% globally. However, competition remains intense, with pricing pressure from large retailers being a significant factor in the market.
Bloomia's net sales for the twelve months ended December 31, 2023, and 2022 were approximately $45 million and $43 million, respectively, indicating steady growth in line with industry trends.
Conclusion Lendway, Inc. finds itself at a pivotal juncture, having undergone a significant transformation with the acquisition of Bloomia. While the company's tulip business holds promising growth potential, it must contend with integration challenges, customer concentration risks, and the need to effectively manage its increased debt burden. The company's financial performance has been impacted by the acquisition, with decreases in key metrics year-over-year, but it maintains adequate liquidity despite a significantly increased debt load.
Lendway's ability to navigate these obstacles, successfully execute its growth initiatives, and capitalize on the stable but competitive fresh cut flower industry outlook will be crucial in determining its long-term success in the dynamic agricultural sector. The company's focus on leveraging Bloomia's strong market position, expanding its geographic footprint, and diversifying its customer base will be key factors in its future performance and growth.