FlexShopper(US:FPAY)2024-05-13 20:02PART I - FINANCIAL INFORMATION Item 1. Financial Statements Q1 2024 financial statements show a 10.3% revenue increase to $33.9 million, a narrowed net loss, and growth in assets and liabilities Condensed Consolidated Balance Sheets Total assets increased to $162.6 million and liabilities to $133.4 million as of March 31, 2024, driven by lease and loan receivables and a new credit agreement Key Balance Sheet Items (unaudited) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $5,593,750 | $4,413,130 | | Lease receivables, net | $49,316,032 | $44,795,090 | | Loan receivables at fair value | $39,457,230 | $35,794,290 | | Total assets | $162,613,750 | $156,490,377 | | Liabilities & Equity | | | | Total current liabilities | $9,021,198 | $12,134,118 | | Loan payable under credit agreement, net | $105,566,690 | $96,384,220 | | Total liabilities | $133,386,129 | $127,259,604 | | Total stockholders' equity | $29,227,621 | $29,230,773 | Condensed Consolidated Statements of Operations Q1 2024 total revenues increased 10.3% to $33.9 million, operating income grew 21.5% to $5.0 million, and net loss slightly narrowed Q1 2024 vs Q1 2023 Performance (unaudited) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenues | $33,944,873 | $30,785,775 | | Operating income | $5,043,982 | $4,152,573 | | Net loss | ($214,179) | ($230,215) | | Net loss attributable to common shareholders | ($1,283,635) | ($1,202,448) | | Basic and diluted loss per common share | ($0.06) | ($0.06) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $5.6 million in Q1 2024, a shift from prior year, with financing activities providing $9.1 million Cash Flow Summary (unaudited) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | ($5,643,178) | $5,599,339 | | Net cash used in investing activities | ($2,279,532) | ($1,922,882) | | Net cash provided by financing activities | $9,103,330 | $19,721 | | Increase in Cash | $1,180,620 | $3,696,178 | Notes To Condensed Consolidated Financial Statements Notes detail the company's LTO and loan business models, key accounting policies, a new 2024 credit agreement, and capital structure - The company operates three main business lines: lease-to-own (LTO) for durable goods, purchasing participation interests in consumer loans originated by a third-party bank, and directly originating consumer loans in 11 states262728 - On March 27, 2024, the company entered into a new credit agreement allowing for borrowing up to $150 million, with a commitment termination date of April 1, 2026, and an interest rate of SOFR plus 9% per annum105 - In Q1 2021, the company received a subpoena from the California Department of Financial Protection and Innovation (DFPI) regarding compliance with state consumer protection laws, and is cooperating with the inquiry130 - On May 17, 2023, the Board authorized an 18-month share repurchase program for up to $2 million of common stock, with 5,418 shares repurchased for a net cost of $6,098 in Q1 2024149150 Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2024 revenue grew 10.3% due to higher lease and loan revenues, gross profit margin improved to 53%, and Adjusted EBITDA increased 18.4% Executive Overview FlexShopper operates as a fintech company offering LTO and loan products via multiple channels, including a new Q1 2024 retail sales initiative - The company's business model includes lease-to-own (LTO) programs, a bank partner loan model, and a direct loan origination model in 11 states153154155 - In Q1 2024, FlexShopper launched a new retail sales initiative, selling items directly and making a profit on the product margin by offering alternative lender payment options on its website156 - The company's bank partner for its loan model exited the high APR business in 2023, and FlexShopper is actively seeking a new bank partner154 Results of Operations Q1 2024 total revenues increased 10.3% to $33.9 million, driven by lease and loan revenue growth, despite higher operating expenses Q1 2024 vs Q1 2023 Operating Results | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $33,944,873 | $30,785,775 | 10.3% | | Gross profit | $17,825,979 | $13,606,360 | 31.0% | | Operating income | $5,043,982 | $4,152,573 | 21.5% | | Net loss | ($214,179) | ($230,215) | (7.0)% | - The provision for doubtful accounts as a percentage of gross lease billings decreased from 33% in Q1 2023 to 27% in Q1 2024166 - Marketing expenses increased 60.6% YoY as the company slowly increases spending to generate more originations after a slowdown in 2023172 - Salaries and benefits expense rose 49.8% YoY, largely due to the addition of employees for the state-licensed loan model173 Liquidity and Capital Resources The company refinanced its credit facility on March 27, 2024, securing up to $150 million in borrowing capacity until April 2026 at SOFR plus 9% - The company refinanced its credit agreement on March 27, 2024, securing up to $150 million in borrowing capacity with a maturity extended to April 2026193 - The interest rate on the new 2024 Credit Agreement is SOFR plus 9% per annum, an improvement from the previous SOFR plus 11%191193 - Management believes cash flow from operations and the new credit facility are sufficient to meet liquidity needs for at least the next 12 months208 Quantitative and Qualitative Disclosures About Market Risk This item is not applicable - The company states that this section is not applicable212 Controls and Procedures A material weakness in internal control over financial reporting was identified regarding tax provision calculations, with remediation efforts underway - A material weakness in internal control over financial reporting was identified as of December 31, 2023, due to a lack of effective controls over the review of tax provision calculations214 - Remediation efforts are underway, including changing the tax third-party service provider, with completion expected in Q2 2024215 - As a result of the material weakness, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024215 PART II - OTHER INFORMATION Legal Proceedings The company is not currently a party to any material pending legal proceedings - The company is not currently a party to any material pending legal proceedings219 Risk Factors No new risk factors are disclosed, referring to the Annual Report on Form 10-K for a discussion of important factors - The report refers to the Risk Factors section of the Annual Report on Form 10-K for the year ended December 31, 2023, for a discussion of important factors220 Unregistered Sales of Equity Securities and Use of Proceeds The company continued its share repurchase program in Q1 2024, repurchasing 5,418 shares for $6,098 - A share repurchase program for up to $2 million was authorized on May 17, 2023, with an 18-month term221 Share Repurchases in Q1 2024 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | February 2024 | 4,318 | $1.10 | | March 2024 | 1,100 | $1.10 | | Total Q1 2024 | 5,418 | - | Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported223 Other Information No other information was reported for this item - None reported225 Exhibits This section lists exhibits filed with the Form 10-Q, including the new Credit Agreement and officer certifications