Results for Quarter Ended
- Total revenues increased 53.8% from
$14.8 million to $22.7 million, calculated on a basis consistent with the 2019 adoption of ASC 842 related to lease accounting FlexShopperoriginated 29,972 gross leases, up 36.0% from 22,035
- Gross lease originations increased 54.7% from
$9.1 million to $14.1 million
- Net income of
$0.5 million, compared with net loss of ($2.3) million
- Net loss attributable to common stockholders declined to
($0.1) million, compared to ($2.9) million
- Gross Profit2 increased 70.7% from
$4.0 million to $6.9 million
- Adjusted EBITDA2 was
$2.3 millioncompared to ($0.9) million
1 Beginning with current period financial results, the Company has adopted a new accounting standard which requires revenues to be reported net of bad debt expense. The Company has retroactively adopted the provisions of the new accounting standard to prior periods in order to provide an accurate comparison.
2 Gross Profit and Adjusted EBITDA are non-GAAP financial measures. Refer to the definitions and reconciliations of these measures under “Non-GAAP Measures”.
Q1 2019 Highlights and Recent Developments
- Continued growth in originations.
FlexShopperoriginated 29,972 gross leases in Q1 2019, representing a gain of 36.0% compared with the prior year period. Growth was driven by continued improvement in repeat customer activity along with strong growth in the Company’s B2B channel.
- Lease originations through third party retail stores, the Company’s B2B channel, grew 214.3% compared to the same period last year. In addition, retail store lease originations increased from 11.0% of total originations in the first quarter of 2018 to 26.4% of originations in the first quarter of 2019.
- The Company’s average cost to acquire a new customer continued to decrease in the first quarter of 2019 to its lowest amount for any fiscal quarter at
$93, compared to $154for the same period in 2018. This decrease is the result of continued optimization of the Company’s marketing and underwriting strategies, combined with increased lease originations through retail partners. Leases acquired through the Company’s B2B retail channel have significantly lower acquisition costs than its direct to consumer, or B2C, channels.
- A retail store pilot has expanded to more than 400 stores. With this expansion and exclusive relationship, the Company’s “save the sale” LTO program is in over 1,100 stores nationwide. This rollout reaffirms the merits of the Company’s mobile LTO technology, which provides a quick and seamless process for retailers and consumers to transact on an LTO basis.
- Strong bottom line results shown by net income (before preferred dividends) exceeding
$500,000. Driven by the combination of strong top line growth and operating expense control, the Company reported its first-ever profitable quarter with net income of approximately $504,000. Adjusted EBITDA was also positive at $2.3 million.
The Company is updating its guidance for 2019.
|Current Guidance||Previous Guidance|
|2019 Gross Lease Originations||> $70 million||> $70 million|
|2019 Gross Revenue||> $110 million||> $110 million|
|2019 Gross Profit||> $25.5 million||> $25.0 million|
|2019 Adjusted EBITDA||> $4.0 million||> $3.5 million|
The Company's guidance for Gross Lease Originations, Gross Revenue, Gross Profit and Adjusted EBITDA are forward-looking statements. They are subject to various risks and uncertainties that could cause the Company's actual results to differ materially from the anticipated targets. There can be no assurance the Company will meet these financial projections. See the cautionary information about forward-looking statements in the "Forward-Looking Statements" section of this press release. Additionally, Gross Profit and Adjusted EBITDA are non-GAAP financial measures. Refer to the definitions of these measures under “Non-GAAP Measures,” but note that information reconciling forward-looking non-GAAP measures to GAAP measures is not available without unreasonable effort.
|Conference Call Details
|Date:||Wednesday, May 8, 2019|
|Time:||10:00 a.m. Eastern Time|
|Participant Dial-In Numbers:|
|Domestic callers:||(877) 407-3944|
|International callers:||(412) 902-0038|
Access by Webcast
The call will also be simultaneously webcast over the Internet via the “Investor” section of the Company’s website at www.flexshopper.com or by clicking on the conference call link: https://78449.themediaframe.com/dataconf/productusers/fpay/mediaframe/30251/indexl.html. An audio replay of the call will be archived on the Company’s website.
CONSOLIDATED STATEMENTS OF OPERATIONS
|For the three months ended
|Lease revenues and fees, net||$||21,784,779||$||14,161,578|
|Lease merchandise sold||946,618||614,518|
|Costs and expenses:|
|Cost of lease revenues, consisting of depreciation and impairment of lease merchandise||15,277,939||10,407,746|
|Cost of lease merchandise sold||565,007||333,763|
|Salaries and benefits||1,758,087||2,179,376|
|Total costs and expenses||21,045,861||16,128,773|
|Interest expense including amortization of debt issuance costs||1,181,993||933,667|
|Dividends on Series 2 Convertible Preferred Shares||609,168||603,680|
|Net loss attributable to common shareholders||$||(105,625||)||$||(2,890,024||)|
|Basic and diluted (loss) per common share:|
|WEIGHTED AVERAGE COMMON SHARES:|
|Basic and diluted||17,650,847||5,294,501|
CONSOLIDATED BALANCE SHEETS
|March 31,||December 31,|
|Accounts receivable, net||6,510,338||6,375,963|
|Lease merchandise, net||28,181,941||32,364,697|
|Total current assets||37,674,819||45,199,030|
|PROPERTY AND EQUIPMENT, net||3,497,073||3,336,664|
|OTHER ASSETS, net||149,852||90,621|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Current portion of loan payable under credit agreement to beneficial shareholder net of $222,526 at 2019 and $167,483 at 2018 of unamortized issuance costs||$||18,372,922||$||14,252,717|
|Accrued payroll and related taxes||195,530||393,095|
|Promissory notes to related parties net of $32,574 at 2019 and $0 at 2018 of unamortized issuance costs||3,762,526||1,814,771|
|Lease liability – current portion||94,249||-|
|Total current liabilities||26,543,348||26,113,304|
|Loan payable under credit agreement to beneficial shareholder net of $54,869 at 2019 and $164,752 at 2018 of unamortized issuance costs and current portion||4,530,310||14,020,335|
|Promissory notes to related parties net of $22,001 at 2019 and $0 at 2018 of unamortized issuance costs and current portion||1,164,789||-|
|Lease liabilities less current portion||37,202||-|
|Series 1 Convertible Preferred Stock, $0.001 par value- authorized 250,000 shares, issued and outstanding 171,191 shares at 2019 and 239,405 shares at $5.00 stated value at 2018||855,955||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, $0.0001 par value- authorized 40,000,000 shares, issued and outstanding: 17,666,193 shares at 2019 and 17,579,870 at 2018||1,767||1,758|
|Additional paid in capital||34,465,425||34,074,488|
|Total stockholders’ equity||9,046,095||8,492,676|
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:|
|Depreciation and impairment of lease merchandise||15,277,939||10,407,746|
|Other depreciation and amortization||584,968||568,078|
|Compensation expense related to issuance of stock options and warrants||36,729||49,702|
|Interest in kind added to promissory notes balance||167,119||-|
|Provision for doubtful accounts||7,344,944||5,175,318|
|Changes in operating assets and liabilities:|
|Prepaid expenses and other||(17,624||)||(361,718||)|
|Accrued payroll and related taxes||(197,565||)||(229,283||)|
|Net cash used in operating activities||(466,654||)||(2,023,358||)|
|CASH FLOWS FROM INVESTING ACTIVITIES|
|Purchases of property and equipment, including capitalized software costs||(553,184||)||(307,340||)|
|Net cash used in investing activities||(553,184||)||(307,340||)|
|CASH FLOWS FROM FINANCING ACTIVITIES|
|Refund of equity issuance related costs||13,147||-|
|Proceeds from promissory notes, net of fees||2,940,000||3,465,000|
|Proceeds from loan payable under credit agreement||1,241,328||1,550,000|
|Repayment of loan payable under credit agreement||(6,665,989||)||(5,855,000||)|
|Repayment of installment loan||(2,802||)||-|
|Net cash used in financing activities||(2,474,316||)||(840,000||)|
|INCREASE/(DECREASE) IN CASH||(3,494,154||)||(3,170,698||)|
|CASH, beginning of period||6,141,210||4,968,915|
|CASH, end of period||$||2,647,056||$||1,798,217|
|Supplemental cash flow information:|
|Non-cash financing activities:|
|Conversion of preferred stock to common stock||$||341,070||-|
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.
Key performance metrics for the three months ended
|Three months ended
|2019||2018||$ Change||% Change|
|Gross lease revenues and fees||$||29,129,723||$||19,336,896||$||9,792,827||50.6|
|Lease merchandise sold||946,618||614,518||332,100||54.0|
|Provision for doubtful accounts and revenue adjustments||(7,344,944||)||(5,175,318||)||(2,169,626||)||41.9|
|Cost of merchandise sold||(565,007||)||(333,763||)||(231,244||)||69.3|
|Cost of lease revenues, consisting of depreciation and impairment of lease merchandise||(15,277,939||)||(10,407,746||)||(4,870,193||)||46.8|
|Gross profit margin||30||%||27||%|
Gross Profit represents GAAP revenue less the provision for doubtful accounts and cost of leased inventory and inventory sold. Gross Profit provides us with an understanding of the results from the primary operations of our business. We use Gross Profit to evaluate our period-over-period operating performance. This measure may be useful to an investor in evaluating the underlying operating performance of our business.
|Three months ended
|2019||2018||$ Change||% Change|
|Amortization of debt costs||60,265||132,404||(72,139||)||(54.5||)|
|Other amortization and depreciation||524,703||435,674||89,029||20.4|
|Non recurring product/infrastructure expenses||92,297||-||92,297||-|
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.
The Company refers to Gross Profit and Adjusted EBITDA in the above tables as the Company uses these measures to evaluate operating performance and to make strategic decisions about the Company. Management believes that 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.
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