FlexShopper, Inc. Reports 2020 Third Quarter Financial Results; Net Revenues Up 5.0% to $23.4 million; Originations Ramped Up Into Quarter End
Results for Quarter Ended
- Net lease revenues and fees increased 5.0% to
$23.4 million from$22.3 million FlexShopper originated 47,317 gross leases, up 29.5% from 36,531- Gross lease originations increased
$5.6 million , or 32.8%, to$22.7 million from$17.1 million - The average origination value increased by 2.5%, to
$480 from$468 - Net income of
$289 thousand compared with net income of$1.4 million - Net loss attributable to common stockholders of
$(0.3) million , or$(0.02) per diluted share, compared net income of$0.8 million , or$0.04 per diluted share - Gross profit increased 8.4% to
$8.9 million from$8.2 million - Adjusted EBITDA1 decreased to
$2.1 million compared to$3.2 million
Results for Nine Months Ended
- Net lease revenues and fees increased 9.4% to
$69.9 million from$63.9 million FlexShopper originated 117,294 gross leases, up 22.5% from 95,731- Gross lease originations increased
$10.5 million , or 23.5%, to$55.1 million from$44.6 million - The average origination value increased to
$470 from$466 - Net income of
$79 thousand compared with net income of$1.6 million - Net loss attributable to common stockholders, inclusive of deemed dividend expense of
$0.7 million in Q1, of$(2.4) million , or$(0.12) per diluted share, compared to$(0.2) million , or$(0.01) per diluted share - Gross profit increased 15.5% to
$24.3 million from$21 million - Adjusted EBITDA1 decreased to
$6.2 million from$7.3 million
¹Adjusted EBITDA is a non-GAAP financial measure. Refer to the definition and reconciliation of this measure under “Non-GAAP Measures”.
Third Quarter 2020 Highlights and Recent Developments
- Rate of origination growth accelerated through the quarter.
FlexShopper recorded growth in gross lease originations of 32.8% in the third quarter with month of September originations representing the largest non-holiday month of originations in the Company’s history. The strong activity experienced in September followed market testing in August and into early September that was undertaken in order to confirm payment activity would conform to expectations. - Payments activity continues to be firm. Continuing the trend cited by the Company on its Q2 earnings call, customer payment activity has remained firm. Additionally, market testing performed by the company beginning late in the second quarter and continuing through mid-third quarter demonstrated a continuation of this trend.
- B-to-B lease originations in September set a record high. The addition of new retail partners, the rebounding from COVID and optimizing of existing retail relationships made September our largest B-to-B lease origination month since inception. We are also successfully broadening our retail categories across tires, furniture and electronics.
- Investments in marketing during the third quarter and continuing in the fourth quarter. Following market testing noted earlier,
FlexShopper began ramping up its digital marketing during the third quarter and expects to continue doing so in the fourth quarter. This marketing program began to yield results as originations accelerated into quarter-end and have continued into the fourth quarter. - Enhanced underwriting methodologies are expected to drive improved returns. As noted on prior investor calls, the company has emphasized a focus on Return on Investment/Return on Capital-oriented management. The company has worked to bolster its underwriting algorithms which, coupled with renewed investment in marketing, are expected to produce revenue growth and further improvements in profitability.
Additionally, Adjusted EBITDA is a non-GAAP financial measure. Refer to the definition of this measure under “Non-GAAP Measures.”
Conference Call Details
Date:
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/41428/indexl.html. An audio replay of the call will be archived on the Company’s website.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the three months ended |
For the nine months ended |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues: | ||||||||||||||||
| Lease revenues and fees, net | $ | 23,391,348 | $ | 22,267,261 | $ | 69,989,333 | $ | 63,953,196 | ||||||||
| Lease merchandise sold | 1,178,716 | 665,074 | 3,953,608 | 2,374,876 | ||||||||||||
| Total revenues | 24,570,064 | 22,932,335 | 73,942,941 | 66,328,072 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of lease revenues, consisting of depreciation and impairment of lease merchandise | 14,886,798 | 14,248,969 | 46,982,002 | 43,787,216 | ||||||||||||
| Cost of lease merchandise sold | 763,728 | 457,399 | 2,685,599 | 1,521,244 | ||||||||||||
| Marketing | 1,650,717 | 868,452 | 3,619,911 | 2,031,227 | ||||||||||||
| Salaries and benefits | 2,499,235 | 2,189,629 | 7,324,620 | 5,984,797 | ||||||||||||
| Operating expenses | 3,528,890 | 2,718,110 | 10,037,743 | 8,156,238 | ||||||||||||
| Total costs and expenses | 23,329,368 | 20,482,559 | 70,649,875 | 61,480,722 | ||||||||||||
| Operating income | 1,240,696 | 2,449,776 | 3,293,066 | 4,847,350 | ||||||||||||
| Interest expense including amortization of debt issuance costs | 951,336 | 1,061,794 | 3,214,083 | 3,265,771 | ||||||||||||
| Net income | 289,360 | 1,387,982 | 78,983 | 1,581,579 | ||||||||||||
| Deemed dividend from exchange offer of warrants | - | - | 713,212 | - | ||||||||||||
| Dividends on Series 2 Convertible Preferred Shares | 609,772 | 609,717 | 1,829,217 | 1,828,167 | ||||||||||||
| Net income/ (loss) attributable to common stockholders | $ | (320,412 | ) | $ | 778,265 | $ | (2,463,446 | ) | $ | (246,588 | ) | |||||
| Basic and diluted loss per common share: | ||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | 0.04 | $ | (0.12 | ) | $ | (0.01 | ) | |||||
| WEIGHTED AVERAGE COMMON SHARES: | ||||||||||||||||
| Basic | 21,358,141 | 17,666,193 | 20,872,940 | 17,661,134 | ||||||||||||
| Diluted | 21,358,141 | 19,798,386 | 20,872,940 | 17,661,134 | ||||||||||||
CONSOLIDATED BALANCE SHEETS
| 2020 | 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 6,750,019 | $ | 6,868,472 | ||||
| Accounts receivable, net | 7,855,320 | 8,272,332 | ||||||
| Prepaid expenses | 794,089 | 672,242 | ||||||
| Lease merchandise, net | 30,658,104 | 31,063,104 | ||||||
| Total current assets | 46,057,532 | 46,876,150 | ||||||
| PROPERTY AND EQUIPMENT, net | 5,563,604 | 5,260,407 | ||||||
| OTHER ASSETS, net | 73,085 | 78,335 | ||||||
| Total assets | $ | 51,694,221 | $ | 52,214,892 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 5,053,768 | $ | 4,567,889 | ||||
| Accrued payroll and related taxes | 307,120 | 513,267 | ||||||
| Current portion of loan payable under credit agreement to beneficial shareholder, net of |
14,297,514 | - | ||||||
| Current portion of promissory notes to related parties, net of |
4,797,051 | 1,067,740 | ||||||
| Current portion of promissory note - Paycheck Protection Program | 1,170,602 | - | ||||||
| Accrued expenses | 1,454,303 | 1,372,901 | ||||||
| Lease liability - current portion | 159,521 | 27,726 | ||||||
| Total current liabilities | 27,239,879 | 7,549,523 | ||||||
| Loan payable under credit agreement to beneficial shareholder, net of |
10,212,510 | 28,904,738 | ||||||
| Promissory notes to related parties, net of |
- | 3,725,172 | ||||||
| Promissory note - Paycheck Protection Program, net of current portion | 751,312 | - | ||||||
| Accrued payroll and related taxes less current portion | 268,255 | - | ||||||
| Lease liabilities less current portion | 1,986,209 | 2,067,184 | ||||||
| Total liabilities | 40,458,165 | 42,246,617 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Series 1 Convertible Preferred Stock, |
851,660 | 855,955 | ||||||
| Series 2 Convertible Preferred Stock, |
21,952,000 | 21,952,000 | ||||||
| Common stock, |
2,136 | 1,779 | ||||||
| Additional paid in capital | 36,506,457 | 35,313,721 | ||||||
| Accumulated deficit | (48,076,197 | ) | (48,155,180 | ) | ||||
| Total stockholders’ equity | 11,236,056 | 9,968,275 | ||||||
| $ | 51,694,221 | $ | 52,214,892 | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended
(unaudited)
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 78,983 | $ | 1,581,579 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and impairment of lease merchandise | 46,982,002 | 43,787,216 | ||||||
| Other depreciation and amortization | 1,889,690 | 1,879,935 | ||||||
| Compensation expense related to issuance of stock options and warrants | 1,052,281 | 530,724 | ||||||
| Provision for doubtful accounts | 23,643,556 | 25,075,156 | ||||||
| Interest in kind added to promissory notes balance | 7,814 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (23,226,544 | ) | (26,675,773 | ) | ||||
| Prepaid expenses and other | (120,482 | ) | (290,556 | ) | ||||
| Lease merchandise | (46,577,002 | ) | (35,764,135 | ) | ||||
| Security deposits | 2,943 | 1,334 | ||||||
| Accounts payable | 485,878 | (5,656,655 | ) | |||||
| Accrued payroll and related taxes | 62,108 | (161,009 | ) | |||||
| Accrued expenses | 273,903 | (317,173 | ) | |||||
| Net cash provided by operating activities | 4,555,130 | 3,990,643 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment, including capitalized software costs | (2,099,654 | ) | (1,664,580 | ) | ||||
| Net cash used in investing activities | (2,099,654 | ) | (1,664,580 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Principal payment under finance lease obligation | (4,891 | ) | (1,243 | ) | ||||
| Refund of equity issuance related costs | - | 23,147 | ||||||
| Proceeds from exercise of warrants | 131,250 | - | ||||||
| Proceeds from exercise of stock options | 5,267 | - | ||||||
| Proceeds from promissory notes - Paycheck Protection Program, net of fees | 1,914,100 | - | ||||||
| Proceeds from promissory notes to related parties, net of fees | - | 3,440,000 | ||||||
| Proceeds from loan payable under credit agreement | 2,412,000 | 2,523,828 | ||||||
| Repayment of loan payable under credit agreement | (7,023,250 | ) | (10,528,488 | ) | ||||
| Repayment of promissory note | - | (500,000 | ) | |||||
| Repayment of instalment loan | (8,405 | ) | (8,405 | ) | ||||
| Debt issuance related costs | - | (243,750 | ) | |||||
| Net cash used in financing activities | (2,573,929 | ) | (5,294,911 | ) | ||||
| DECREASE IN CASH | (118,453 | ) | (2,968,848 | ) | ||||
| CASH, beginning of period | $ | 6,868,472 | $ | 6,141,210 | ||||
| CASH, end of period | $ | 6,750,019 | $ | 3,172,362 | ||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | 3,021,833 | $ | 2,700,709 | ||||
| Deemed dividend from exchange offer of warrants | $ | 713,212 | $ | - | ||||
| Conversion of preferred stock to common stock | $ | 4,295 | $ | 341,070 | ||||
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.
Adjusted EBITDA represents net income before interest, stock-based compensation, taxes, depreciation (other than depreciation of leased inventory), amortization, and one-time or non-recurring items. We believe that Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing charges and income taxes.
Key performance metrics for the three and nine months ended
| Three months ended |
||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Adjusted EBITDA: | ||||||||||||||||
| Net income | $ | 289,360 | $ | 1,387,982 | (1,098,622 | ) | (79.2 | ) | ||||||||
| Amortization of debt costs | 50,050 | 111,506 | (61,456 | ) | (55.1 | ) | ||||||||||
| Other amortization and depreciation | 593,267 | 531,289 | 61,978 | 11.7 | ||||||||||||
| Interest expense | 901,286 | 950,288 | (49,002 | ) | (5.2 | ) | ||||||||||
| Stock compensation | 169,393 | 117,134 | 52,259 | 44.6 | ||||||||||||
| Non-recurring product/infrastructure expenses | 97,390 | 79,272 | 18,118 | 22.9 | ||||||||||||
| Adjusted EBITDA | $ | 2,100,746 | $ | 3,177,471 | (1,076,725 | ) | (33.9 | ) | ||||||||
| Nine months ended |
||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Adjusted EBITDA: | ||||||||||||||||
| Net income | $ | 78,983 | $ | 1,581,579 | $ | (1,502,596 | ) | (95.0 | ) | |||||||
| Amortization of debt costs | 234,283 | 230,340 | 3,943 | 1.7 | ||||||||||||
| Other amortization and depreciation | 1,655,406 | 1,649,597 | 5,809 | 0.4 | ||||||||||||
| Interest expense | 2,979,800 | 3,035,431 | (55,631 | ) | (1.8 | ) | ||||||||||
| Stock compensation | 793,241 | 445,906 | 347,335 | 77.9 | ||||||||||||
| Non-recurring product/infrastructure expenses | 281,830 | 306,383 | (24,553 | ) | (8.0 | ) | ||||||||||
| Warrants compensation- consulting agreement | 139,480 | 43,200 | 96,280 | 222.9 | ||||||||||||
| Adjusted EBITDA | $ | 6,163,023 | $ | 7,292,436 | $ | (1,129,413 | ) | (15.0 | ) | |||||||
The Company refers to Adjusted EBITDA in the above table as the Company uses this measure to evaluate operating performance and to make strategic decisions about the Company. Management believes that Adjusted EBITDA provides relevant and useful information which is widely used by analysts, investors and competitors in its industry in assessing performance.
About
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
Contact:
Vice President
The Equity Group
212-836-9626
jhellman@equityny.com
Investor Relations
ir@flexshopper.com
Source: FlexShopper, Inc.