FlexShopper, Inc. Reports 2018 Third Quarter Financial Results Highlighted by 90% Growth in Lease Originations and 27% Revenue Growth

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Company Provides 2019 Guidance

BOCA RATON, Fla., Nov. 05, 2018 (GLOBE NEWSWIRE) -- FlexShopper, Inc. (Nasdaq:FPAY) (“FlexShopper”), a leading national online lease-to-own (“LTO”) retailer and LTO payment solution provider, today announced its financial results for the quarter ended September 30, 2018, highlighted by record third quarter revenue and lease originations.

Results for Three Months Ended September 30, 2018 vs. Three Months Ended September 30, 2017:

  • Total revenues increased 27.3% from $16.5 million to $21.0 million
  • Gross lease originations increased from $6.5 million to $12.4 million, or 90%
  • Net loss increased to $2.7 million compared to a net loss of $1.7 million
  • Net loss attributable to common shareholders increased to $3.3 million, or $0.56 per diluted share, compared to $2.3 million, or $0.44 per diluted share

Results for Nine Months Ended September 30, 2018 vs. Nine Months Ended September 30, 2017:

  • Total revenues increased 18.6% from $50.6 million to $60.0 million
  • Gross lease originations increased from $20.9 million to $30.8 million, or 47.3%
  • Net loss increased to $7.0 million compared to a net loss of $4.3 million
  • Net loss attributable to common shareholders increased to $8.8 million, or $1.59 per diluted share, compared to $6.1 million, or $1.14 per diluted share
  • Adjusted Gross Profit¹ increased 19.1% from $10.7 million to $12.8 million
  • Adjusted EBITDA¹ was ($2.3) million compared to ($1.5) million

¹Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. Refer to the definitions and reconciliations of these measures under “Non-GAAP Measures”.

Other Highlights and Recent Developments

  • In the third quarter of 2018, our average cost to acquire a new customer was at its lowest ever at $133 compared to $249 for the same quarter last year. This decrease is the result of continued optimization of our marketing and underwriting strategies combined with increased lease originations through retail partners. While marketing expense increased compared to the same period last year, our investments in marketing at targeted acquisition costs drives revenues and gross profits in future periods and are within the Company’s budget.
  • Initiated cost reduction plan with up to $1.4 million in annualized cash savings. This includes personnel reductions made in October. The cost reductions and continued lease origination growth are part of the Company’s proactive plan to become EBITDA positive and profitable.
  • Strong increase in lease originations continued through October. October gross lease originations were $5.0 million, an increase of 82.6% from $2.7 million during the same period in 2017. Cumulative gross lease originations for the ten months ended October 31, 2018 were $35.8 million representing a 51.4% increase from $23.6 million in the same period in 2017.
  • Company launched its largest retail rollout to 730 retail stores, accelerating its B2B2C business. This rollout successfully demonstrated our “integrationless” mobile application technology, which provides a quick and seamless process for retailers and consumers to transact on an LTO basis. Our technology does not require integration into the retailer’s point of sale and enables retailers to get paid instantly at the point of sale.
  • Received a Patent from the United States Patent and Trademark Office (USPTO). The patent is for a system that enables e-commerce servers to complete LTO transactions through their e-commerce websites.

Brad Bernstein, CEO, stated, “We are pleased to report another quarter of continued revenue and lease origination growth. In the third quarter, the combination of well-executed underwriting and marketing initiatives and increased retail lease originations resulted in our lowest customer acquisition costs ever. With our recent $10 million growth capital raise and continued strong momentum through October, we are ready to execute for the holiday season, during which we typically originate up to 35% of our annual lease originations.  We are excited, as our record lease originations are expected to translate into revenues and gross profits in future periods and give us the confidence to provide financial guidance for 2019.”

Financial Outlook – FY 2018 and FY2019 Guidance

 

  Current Guidance
Gross Lease Originations  > $52 million (FY 2018)
Gross Revenue  > $105 million (FY 2019)
Adjusted Gross Profit  > $24 million (FY 2019)
Adjusted EBITDA  > $3 million (FY 2019)

  

The Company's guidance for Gross Lease Originations, Gross Revenue, Adjusted Gross Profit and Adjusted EBITDA are forward-looking statements. They are subject to various risks and uncertainties that could cause the Company's actual results to differ materially from the anticipated targets. There can be no assurance the Company will meet these financial projections. See the cautionary information about forward-looking statements in the "Forward-Looking Statements" section of this press release. Additionally, Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. Refer to the definitions of these measures under "Non-GAAP Measures," but note that information reconciling forward-looking non-GAAP measures to GAAP measures is not available without unreasonable effort.

Conference Call Details
Date:   Monday, November 5, 2018
Time:   10:00 a.m. Eastern Time

Participant Dial-In Numbers:
Domestic callers:    (877) 407-3944
International callers:   (412) 902-0038

Access by Webcast
The call will also be simultaneously webcast over the Internet via the “Investor” section of the Company’s website at www.flexshopper.com or by clicking on the conference call link: https://78449.themediaframe.com/dataconf/productusers/fpay/mediaframe/27326/indexl.html. An audio replay of the call will be archived on the Company’s website.


FLEXSHOPPER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

    For the three months ended
September 30,		     For the nine months ended
September 30,		  
    2018     2017     2018     2017  
                         
Revenues:                        
Lease revenues and fees   $ 20,514,492     $ 16,144,184     $ 58,439,865     $ 49,458,109  
Lease merchandise sold     490,208       359,656       1,592,556       1,174,608  
Total revenues     21,004,700       16,503,840       60,032,421       50,632,717  
                                 
Costs and expenses:                                
Cost of lease revenues, consisting of depreciation and impairment of lease merchandise     10,289,709       8,146,293       29,684,867       24,733,915  
Cost of lease merchandise sold     349,209       280,130       1,007,677       816,058  
Provision for doubtful accounts     5,905,083       4,681,832       16,563,888       14,357,461  
Marketing     1,596,322       994,576       4,025,509       2,625,367  
Salaries and benefits     2,186,835       1,900,925       6,397,999       5,567,082  
Operating expenses     2,206,496       1,723,309       6,163,680       5,266,278  
Total costs and expenses     22,533,654       17,727,065       63,843,620       53,366,161  
                                 
Operating loss     (1,528,954 )     (1,223,225 )     (3,811,199 )     (2,733,444 )
                                 
Loss on extinguishment of debt     126,622       -       126,622       -  
Interest expense including amortization of debt issuance costs     1,061,827       504,392       3,040,832       1,611,687  
Net loss     (2,717,403 )     (1,727,617 )     (6,978,653 )     (4,345,131 )
                                 
Dividends on Series 2 Convertible Preferred Shares     609,168       603,680       1,817,672       1,712,716  
Net loss attributable to common shareholders   $ (3,326,571 )   $ (2,331,297 )   $ (8,796,325 )   $ (6,057,847 )
                                 
Basic and diluted (loss) per common share:                                
Net loss   $ (0.56 )   $ (0.44 )   $ (1.59 )   $ (1.14 )
                                 
WEIGHTED AVERAGE COMMON SHARES:                                
Basic and diluted     5,950,161       5,292,281       5,539,815       5,290,077  
                                 
                                 

FLEXSHOPPER, INC.
CONSOLIDATED BALANCE SHEETS

    September 30,     December 31,  
    2018     2017  
    (unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash   $ 7,282,103     $ 4,968,915  
Accounts receivable, net     4,815,676       4,259,468  
Prepaid expenses     182,189       321,035  
Lease merchandise, net     18,326,430       21,415,322  
Total current assets     30,606,398       30,964,740  
                 
PROPERTY AND EQUIPMENT, net     3,313,109       2,948,164  
                 
OTHER ASSETS, net     91,390       95,722  
    $ 34,010,897     $ 34,008,626  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES:                
Current portion of loan payable under credit agreement to beneficial shareholder net of $89,180 at 2018 and $118,404 at 2017 of unamortized issuance costs   $ 3,580,330     $ 14,094,096  
Accounts payable     5,928,893       7,702,145  
Accrued payroll and related taxes     225,081       404,346  
Promissory notes     1,750,000       -  
Accrued expenses     858,863       786,095  
Total current liabilities     12,343,167       22,986,682  
                 
Loan payable under credit agreement to beneficial shareholder net of $264,633 at 2018 and $39,468 at 2017 of unamortized issuance costs and current portion     10,624,240       4,698,032  
Total liabilities     22,967,407       27,684,714  
                 
STOCKHOLDERS’ EQUITY                
Series 1 Convertible Preferred Stock, $0.001 par value- authorized 250,000 shares, issued and outstanding 239,405 shares at $5.00 stated value     1,197,025       1,197,025  
Series 2 Convertible Preferred Stock, $0.001 par value- authorized 25,000 shares, issued and outstanding 21,952 shares at $1,000 stated value     21,952,000       21,952,000  
Common stock, $0.0001 par value- authorized 25,000,000 shares, issued and outstanding 17,579,870 shares at 2018 and 5,294,501 at 2017     1,758       529  
Additional paid in capital     34,142,693       22,445,691  
Accumulated deficit     (46,249,986 )     (39,271,333 )
Total stockholders’ equity     11,043,490       6,323,912  
    $ 34,010,897     $ 34,008,626  
                 
                 

FLEXSHOPPER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2018 and 2017
(unaudited)

    2018     2017  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net loss   $ (6,978,653 )   $ (4,345,131 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and impairment of lease merchandise     29,684,866       24,733,916  
Other depreciation and amortization     1,850,452       1,536,491  
Compensation expense related to issuance of stock options     101,025       64,896  
Provision for doubtful accounts     16,563,888       14,357,461  
Loss on debt extinguishment     126,622       -  
Changes in operating assets and liabilities:                
Accounts receivable     (17,120,096 )     (15,570,400 )
Prepaid expenses and other     141,126       13,255  
Lease merchandise     (26,595,974 )     (17,315,091 )
Security deposits     2,025       (10,207 )
Accounts payable     (1,560,609 )     (1,188,200 )
Accrued payroll and related taxes     (179,265 )     (147,388 )
Accrued expenses     128,766       44,386  
Net cash (used in) provided by operating activities     (3,835,827 )     2,173,988  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment, including capitalized software costs     (1,752,095 )     (1,487,441 )
Net cash (used in) investing activities     (1,752,095 )     (1,487,441 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from exercise of stock options     -       15,000  
Proceeds from exercise of warrants     1,750       -  
Proceeds from public offering     10,007,500       -  
Equity issuance related costs     (862,810 )     -  
Proceeds from promissory notes     3,465,000       -  
Proceeds from loan payable under credit agreement     5,185,000       -  
Repayment of loan payable under credit agreement     (9,786,487 )     (2,288,207 )
Repayment of installment loan     (8,405 )     -  
Debt issuance related costs     (100,438 )     -  
Net cash provided by (used in) financing activities     7,901,110       (2,273,207 )
                 
INCREASE/(DECREASE) IN CASH     2,313,188       (1,586,660 )
                 
CASH, beginning of period     4,968,915       5,412,495  
                 
CASH, end of period   $ 7,282,103     $ 3,825,835  
                 
Supplemental cash flow information:            
Interest paid   $ 2,104,110     $ 1,179,826  
Non-cash                
Issuance of common stock and warrants to extinguishment debt and accrued interest   $ 2,089,266       -  
Accrued equity issuance costs   $ 160,000       -  
Accrued equity issuance costs   $ 523,250       -  
                 
                 

Non-GAAP Measures
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

    Three months ended
September 30,		            
    2018     2017     $ Change     % Change
Adjusted Gross Profit:                      
Lease revenues and fees   $ 20,514,492     $ 16,144,184     $ 4,370,308       27.1
Lease merchandise sold     490,208       359,656       130,552       36.3
Cost of merchandise sold     (349,209 )     (280,130 )     (69,079 )     24.7
Provision for doubtful accounts     (5,905,083 )     (4,681,832 )     (1,223,251 )     26.1
Net revenues     14,750,408       11,541,878       3,208,530       27.8
Cost of lease revenues, consisting of depreciation and impairment of lease merchandise     (10,289,709 )     (8,146,293 )     (2,143,416 )     26.3
Adjusted Gross Profit   $ 4,460,699     $ 3,395,585     $ 1,065,114       31.4
Gross profit margin     30 %     29 %              
Net revenues as a percentage of cost of lease revenue     143 %     140 %              
                               


    Nine months ended
September 30,		              
    2018     2017     $ Change     % Change  
Adjusted Gross Profit:                        
Lease revenues and fees   $ 58,439,865     $ 49,458,109     $ 8,981,756         18.2  
Lease merchandise sold     1,592,556       1,174,608       417,948         35.6  
Cost of merchandise sold     (1,007,677 )     (816,058 )     (191,619 )        23.5  
Provision for doubtful accounts     (16,563,888 )     (14,357,461 )     (2,206,427 )       15.4  
Net revenues     42,460,856       35,459,198       7,001,658         19.7  
Cost of lease revenues, consisting of depreciation and impairment of lease merchandise     (29,684,867 )     (24,733,915 )     (4,950,952 )       20.0  
Adjusted Gross Profit   $ 12,775,989     $ 10,725,283     $ 2,050,706         19.1  
Gross profit margin     30 %     30 %                
Net revenues as a percentage of cost of lease revenue     143 %     142 %                
                                 


    Three months ended
September 30,		              
    2018       2017     $ Change     % Change  
Adjusted EBITDA:                        
Net loss   $ (2,717,403 )     $ (1,727,617 )   $ (989,786 )     57.3  
Amortization of debt costs     167,689         118,404       49,285       41.6  
Other amortization and depreciation     491,252         415,443       75,809       18.2  
Loss on debt extinguishment     126,622         -       126,622       -  
Interest expense     894,138         385,989       508,149       131.6  
Stock compensation     28,544         22,685       5,859       25.8  
Adjusted EBITDA   $ (1,009,158 )*     $ (785,096 )*   $ (224,062 )     28.5  
                                   


    Nine months ended
September 30,		              
    2018     2017     $ Change     % Change  
Adjusted EBITDA:                        
Net loss   $ (6,978,653 )   $ (4,345,131 )   $ (2,633,522 )     60.6  
Amortization of debt costs     460,996       355,212       105,784       29.8  
Other amortization and depreciation     1,389,456       1,181,279       208,177       17.6  
Loss on debt extinguishment     126,622       -       126,622       -  
Interest expense     2,579,836       1,256,475       1,323,361       105.3  
Stock compensation     101,025       64,896       36,129       55.7  
Adjusted EBITDA   $ (2,320,718 )*   $ (1,487,269 )*   $ (833,449 )     56.0  
                                 

We refer to Adjusted Gross Profit and Adjusted EBITDA in the above tables as we use these measures to evaluate our operating performance and make strategic decisions about the Company. Management believes that Adjusted Gross Profit and Adjusted EBITDA provide relevant and useful information which is widely used by analysts, investors and competitors in our industry in assessing performance.

Adjusted Gross Profit represents GAAP revenue less the provision for doubtful accounts and cost of leased inventory and inventory sold. Adjusted Gross Profit provides us with an understanding of the results from the primary operations of our business. We use Adjusted Gross Profit to evaluate our period-over-period operating performance. This measure may be useful to an investor in evaluating the underlying operating performance of our business.

About FlexShopper
FlexShopper, LLC, a wholly owned subsidiary of FlexShopper, Inc. (FPAY), is a financial and technology company that provides brand name electronics, home furnishings and other durable goods to consumers on a lease-to-own (LTO) basis through its e-commerce marketplace (www.FlexShopper.com) and patent pending LTO payment method. FlexShopper also provides LTO technology platforms to retailers and e-retailers to facilitate transactions with consumers that want to acquire their products, but do not have sufficient cash or credit. FlexShopper approves consumers utilizing its proprietary consumer screening model, collects from consumers under an LTO contract and funds the LTO transactions by paying merchants for the goods.

Forward-Looking Statements
All statements in this release that are not based on historical fact are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include the Company’s financial guidance for fiscal year 2019. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “goal,” “estimate,” “anticipate,” or other comparable terms. Examples of forward-looking statements include, among others, statements we make regarding expectations of lease originations during the holiday season, the expansion of our lease-to-own program; expectations concerning our partnerships with retail partners; investments in, and the success of, our underwriting technology and risk analytics platform; our ability to collect payments due from customers; expected future operating results and; expectations concerning our business strategy. Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements, as a result of various factors including, among others, the following: our limited operating history, limited cash and history of losses; our ability to obtain adequate financing to fund our business operations in the future; the failure to successfully manage and grow our FlexShopper.com e-commerce platform; our ability to maintain compliance with financial covenants under our credit agreement; our dependence on the success of our third-party retail partners and our continued relationships with them; our compliance with various federal, state and local laws and regulations, including those related to consumer protection; the failure to protect the integrity and security of customer and employee information; and the other risks and uncertainties described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. The forward-looking statements made in this release speak only as of the date of this release, and FlexShopper assumes no obligation to update any such forward-looking statements to reflect actual results or changes in expectations, except as otherwise required by law. 

Contact:
Jeremy Hellman
Senior Associate
The Equity Group
212-836-9626
jhellman@equityny.com

FlexShopper, Inc.
Investor Relations
ir@flexshopper.com
FlexShopper, Inc.

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FlexShopper, Inc.