FlexShopper, Inc. Reports 2020 Second Quarter Financial Results; Net Revenues Up 15.1% to $22.9 million; Adjusted EBITDA up 12.7% to $2.0 million

Rhea-AI Summary

FlexShopper, Inc. (FPAY) reported strong financial results for Q2 2020, with net lease revenues rising 15.1% to $22.9 million compared to the previous year. Gross lease originations increased by 16.0% to 33,941. The company achieved a gross profit of $7.4 million, marking a 25.8% increase. Adjusted EBITDA grew to $2.0 million, up from $1.8 million. Despite these gains, FlexShopper recorded a net loss of $(0.9 million), slightly better than last year's $(0.9 million), with losses per share at $(0.04). Retail activities improved but remained below pre-COVID levels as delays from the pandemic impacted planned retailer rollouts.

Positive

• Net lease revenues increased by 15.1% to $22.9 million.
• Gross lease originations rose by 16.0% to 33,941 leases.
• Gross profit increased 25.8% to $7.4 million.
• Adjusted EBITDA improved to $2.0 million, up from $1.8 million.

Negative

• Net loss of $(0.9 million) compared to the same quarter last year.
• Loss per share of $(0.04), slightly worse than $(0.05) last year.
• Retailer rollouts were delayed due to COVID-19.

BOCA RATON, Fla., Aug. 10, 2020 (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 June 30, 2020, highlighted by growth in adjusted EBITDA and net revenues.

Results for Quarter Ended June 30, 2020 vs. Quarter Ended June 30, 2019:

• Net lease revenues and fees increased 15.1% to $22.9 million from $19.9 million
• FlexShopper originated 33,941 gross leases, up 16.0% from 29,252
• Gross lease originations increased $2.1 million, or 15.8%, to $15.3 million from $13.2 million
• The average origination value remained flat at $452
• Net loss of $(262) thousand compared with a net loss of $(310) thousand
• Net loss attributable to common stockholders of $(0.9) million, or $(0.04) per diluted share, compared to $(0.9) million, or $(0.05) per diluted share
• Gross profit increased 25.8% to $7.4 million from $5.9 million
• Adjusted EBITDA¹ increased to $2.0 million compared to $1.8 million

Results for Six Months Ended June 30, 2020 vs. Six Months Ended June 30, 2019:

• Net lease revenues and fees increased 11.8% to $46.6 million from $41.7 million
• FlexShopper originated 70,068 gross leases, up 18.3% from 59,245
• Gross lease originations increased $4.8 million, or 17.3%, to $32.5 million from $27.7 million
• The average origination value decreased to $464 from $467
• Net loss of $(210) thousand compared with net income of $194 thousand
• Net loss attributable to common stockholders, inclusive of deemed dividend expense of $0.7 million in Q1, of $(2.1) million, or $(0.10) per diluted share, compared to $(1.0) million, or $(0.06) per diluted share
• Gross profit increased 20.0% to $15.4 million from $12.8 million
• Adjusted EBITDA¹ remained flat at $4.1 million

¹Adjusted EBITDA is a non-GAAP financial measure. Refer to the definition and reconciliation of this measure under “Non-GAAP Measures”.

Second Quarter 2020 Highlights and Recent Developments

• Growth in originations and net revenues. FlexShopper recorded growth in both gross lease originations and net revenues in the second quarter.  Retail partner lease originations saw improvement from COVID-19 restriction-driven lows experienced at the end of Q1/early in Q2 but remained below pre-pandemic levels.
   
• Payments activity remains firm.  As of June 30, 2020, FlexShopper observed an improvement in payments activity by its customers compared to the same period last year. The Company continues to closely monitor payments on a weekly basis and intends to modify its marketing and underwriting as needed.
   
• Retailer rollouts were delayed due to COVID-19. Previously-planned programs with new retail partners that were originally scheduled for late Q1 and/or Q2 were delayed. Since the end of Q2, the Company has been able to move forward with some of these new programs.

Rich House, CEO, stated, “Over the course of the second quarter we saw states progress through phased economic reopenings.  As they did so, we followed suit as we felt an increased marketing push would yield a positive return. On our first quarter earnings call we noted that our payment activity had remained firm and that continues to be the case. 

Mr. House continued, “Our retail partners have seen their store traffic begin to return as states moved through phased reopening of in-person businesses. That has, in turn, led to an increase in leases originated through this channel although activity remains below levels experienced prior to COVID-19. We are now moving forward with new partner trials and rollouts that were delayed earlier in the year.”

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:	Tuesday , August 11, 2020 9:00 a.m. Eastern Time
Participant Dial-In Numbers:
Domestic callers: International callers:	(877) 407-3944 (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/37617/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 June 30,								For the six months ended June 30,
	2020				2019				2020				2019
Revenues:
Lease revenues and fees, net	$	22,900,280			$	19,901,156			$	46,597,985			$	41,685,935
Lease merchandise sold		1,629,850				763,184				2,774,892				1,709,802
Total revenues		24,530,130				20,664,340				49,372,877				43,395,737
Costs and expenses:
Cost of lease revenues, consisting of depreciation and impairment of lease merchandise		15,898,255				14,260,308				32,095,204				29,538,247
Cost of lease merchandise sold		1,291,090				498,838				1,921,871				1,063,845
Marketing		938,049				314,229				1,969,194				1,162,775
Salaries and benefits		2,276,516				2,037,081				4,825,385				3,795,168
Operating expenses		3,337,162				2,841,846				6,508,853				5,438,128
Total costs and expenses		23,741,072				19,952,302				47,320,507				40,998,163
Operating income		789,058				712,038				2,052,370				2,397,574
Interest expense including amortization of debt issuance costs		1,051,120				1,021,984				2,262,747				2,203,977
Net (loss)/ income		(262,062	)			(309,946	)			(210,377	)			193,597
Deemed dividend from exchange offer of warrants		-				-				713,212				-
Dividends on Series 2 Convertible Preferred Shares		609,728				609,282				1,219,445				1,218,450
Net loss attributable to common shareholders	$	(871,790	)		$	(919,228	)		$	(2,143,034	)		$	(1,024,853	)
Basic and diluted loss per common share:
Basic and diluted	$	(0.04	)		$	(0.05	)		$	(0.10	)		$	(0.06	)
WEIGHTED AVERAGE COMMON SHARES:
Basic and diluted		21,351,914				17,666,193				20,627,674				17,658,562

FLEXSHOPPER, INC.
CONSOLIDATED BALANCE SHEETS

	June 30,				December 31,
	2020				2019
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	9,851,009			$	6,868,472
Accounts receivable, net		7,969,997				8,272,332
Prepaid expenses		591,276				672,242
Lease merchandise, net		26,081,242				31,063,104
Total current assets		44,493,524				46,876,150
PROPERTY AND EQUIPMENT, net		5,489,986				5,260,407
OTHER ASSETS, net		73,854				78,335
	$	50,057,364			$	52,214,892
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,079,283			$	4,567,889
Accrued payroll and related taxes		513,098				513,267
Loan payable under credit agreement to beneficial shareholder, net of $36,838 at 2020 of unamortized issuance costs		8,541,037				-
Promissory notes to related parties, net of $16,552 at 2020 and $5,333 at 2019 of unamortized issuance costs, including accrued interest		4,793,918				1,067,740
Promissory note		845,047				-
Accrued expenses		1,210,665				1,372,901
Lease liability - current portion		151,146				27,726
Total current liabilities		19,134,194				7,549,523
Loan payable under credit agreement to beneficial shareholder, net of $73,676 at 2020 and $281,138 at 2019 of unamortized issuance costs and current portion		17,082,075				28,904,738
Promissory notes to related parties, net of $24,828 at 2019 of unamortized issuance costs and current portion		-				3,725,172
Promissory note		1,072,042				-
Accrued payroll and related taxes less current portion		85,091				-
Lease liabilities less current portion		2,028,852				2,067,184
Total liabilities		39,402,254				42,246,617
STOCKHOLDERS’ EQUITY
Series 1 Convertible Preferred Stock, $0.001 par value - authorized 250,000 shares, issued and outstanding 170,332 shares at 2020 and 171,191 shares at 2019 at $5.00 stated value		851,660				855,955
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 21,356,112 shares at 2020 and 17,783,960 shares at 2019		2,136				1,779
Additional paid in capital		36,214,871				35,313,721
Accumulated deficit		(48,365,557	)			(48,155,180	)
Total stockholders’ equity		10,665,110				9,968,275
	$	50,057,364			$	52,214,892

FLEXSHOPPER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2020 and 2019
(unaudited)

	2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/ income	$	(210,377	)		$	193,597
Adjustments to reconcile net income/(loss) to net cash provided by operating  activities:
Depreciation and impairment of lease merchandise		32,095,204				29,538,247
Other depreciation and amortization		1,246,372				1,237,143
Compensation expense related to issuance of stock options and warrants		763,328				371,972
Provision for doubtful accounts		15,564,198				15,774,830
Interest in kind added to promissory notes balance		2,989				-
Changes in operating assets and liabilities:
Accounts receivable		(15,261,863	)			(16,296,288	)
Prepaid expenses and other		81,916				(198,666	)
Lease merchandise		(27,113,342	)			(21,598,717	)
Security deposits		2,943				(40,801	)
Accounts payable		(1,488,607	)			(5,745,326	)
Accrued payroll and related taxes		84,922				(28,436	)
Accrued expenses		27,258				(511,712	)
Net cash provided by operating activities		5,794,941				2,695,843
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, including capitalized software costs		(1,399,360	)			(1,105,122	)
Net cash used in investing activities		(1,399,360	)			(1,105,122	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payment under finance lease obligation		(3,175	)			-
Refund of equity issuance related costs		-				23,147
Proceeds from exercise of warrants		131,250				-
Proceeds from exercise of stock options		2,634				-
Proceeds from promissory notes, net of fees		1,914,100				3,440,000
Proceeds from loan payable under credit agreement		2,412,000				1,358,343
Repayment of loan payable under credit agreement		(5,864,250	)			(9,255,988	)
Repayment of promissory note		-				(500,000	)
Repayment of instalment loan		(5,603	)			(5,604	)
Net cash used in financing activities		(1,413,044	)			(4,940,102	)
INCREASE/ (DECREASE) IN CASH		2,982,537				(3,349,381	)
CASH, beginning of period	$	6,868,472			$	6,141,210
CASH, end of period	$	9,851,009			$	2,791,829
Supplemental cash flow information:
Interest paid	$	2,120,502			$	1,936,218
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 six months ended June 30, 2020 and 2019 were as follows:

	Three months ended June 30,
	2020				2019				$ Change				% Change
Adjusted EBITDA:
Net loss	$	(262,062	)		$	(309,946	)		$	47,884			(15.4	)
Amortization of debt costs		89,888				58,569				31,319			53.5
Other amortization and depreciation		602,126				593,605				8,521			1.4
Interest expense		961,233				963,415				(2,182	)		(0.2	)
Stock compensation		452,033				303,243				148,790			49.1
Non-recurring product/infrastructure expenses		63,376				134,814				(71,438	)		(53.0	)
Warrants compensation- consulting agreement		95,481				32,000				63,481			198.4
Adjusted EBITDA	$	2,002,075			$	1,775,700			$	226,375			12.7

	Six months ended June 30,
	2020				2019				$ Change				% Change
Adjusted EBITDA:
Net income/ (loss)	$	(210,377	)		$	193,597			$	(403,974	)		(208.7	)
Amortization of debt costs		184,233				118,834				65,399			55.0
Other amortization and depreciation		1,062,139				1,118,308				(56,169	)		(5.0	)
Interest expense		2,078,514				2,085,143				(6,629	)		(0.3	)
Stock compensation		623,848				328,772				295,076			89.8
Non-recurring product/infrastructure expenses		184,440				227,111				(42,671	)		(18.8	)
Warrants compensation- consulting agreement		139,480				43,200				96,280			222.9
Adjusted EBITDA	$	4,062,277			$	4,114,965			$	(52,688	)		(1.3	)

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 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) as well as its patented and patent pending systems. 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
Vice President
The Equity Group
212-836-9626
jhellman@equityny.com

FlexShopper, Inc.
Investor Relations
ir@flexshopper.com

FlexShopper, Inc.

FAQ

What are FlexShopper's Q2 2020 financial results?

FlexShopper reported a 15.1% increase in net lease revenues, reaching $22.9 million, along with a gross profit of $7.4 million.

How did FlexShopper perform compared to last year?

In Q2 2020, FlexShopper's net loss improved to $(0.9 million) from $(0.9 million) in Q2 2019, with losses per share decreasing from $(0.05) to $(0.04).

What challenges did FlexShopper face in Q2 2020?

FlexShopper experienced delays in retailer rollouts due to COVID-19, affecting its expansion plans.

What is the outlook for FlexShopper following this report?

While FlexShopper saw growth in revenues and originations, ongoing challenges from the pandemic may affect future performance.