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, /PRNewswire/ — Argus Research, an independent investment research firm, has launched Equity Research Report coverage on FlexShopper, Inc. (NasdaqCM:FPAY).
Click Here to view full Argus Equity Research Report.
COMPANY HIGHLIGHTS: Excerpts (as conveyed by Argus Analyst Steve Silver) include:
FPAY: A Leader in LTO Financing
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Leader in the LTO Financing Market: In our view, FlexShopper is executing on a growth strategy to establish leading DTC and B2B solutions for nonprime consumers (typically those with FICO scores below 660). The company operates an Amazon-like marketplace to purchase goods in their DTC channel and provides multiple financing options (including internal and third-party) to serve a wider base of customers with limited access to credit. FlexShopper also works with B2B retail channel partners, both online and offline, to provide financing for customers that traditional “buy now pay later” (BNPL) companies, such as Affirm, would typically not fund.
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New Leadership Drives Transition to Profitability: Over the past two years, a new leadership team has repositioned FlexShopper’s operating model, which resulted in the achievement of positive net income in 3Q24. We expect the company’s profitability to continue to expand moving forward, and see multiple operational catalysts in 2025 that should continue to drive improved investor sentiment.
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Analytical, Risk-Based Algorithms Driving Loan Growth and Improved Asset Quality: We view positively FlexShopper’s investments in its digital and analytics infrastructure, which is supporting improved underwriting decisions and improving portfolio asset quality. Since late 2022, FlexShopper has seen growth in loan originations, with better asset yield and with bad debt declining by nearly 1000 basis points year over year. In 3Q24, improved asset quality drove a $2 million benefit compared to the prior-year period.
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Expanding Retail Channel and Payment Provider Partnerships: Across 2024, FlexShopper has expanded a retail partner channel built upon largely exclusive relationships that we see driving loan originations both in-store and on retailer websites while driving traffic back to FlexShopper’s e-commerce marketplace. Year-to-date, the company has signed partnerships for approximately 7,800 retail locations, representing a 250% increase over the end of 2023, and has exceeded its initial 2024 retail store count goal by the third quarter of the year. FlexShopper has also launched partnerships with multiple payment solution providers to expand customer payment options and expand its reach. Despite these results, we still see the company as being in the early stages of its growth cycle.
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Discount Purchase of Series 2 Preferred Stock: In October 2024, FlexShopper entered into a purchase option agreement with the majority holder of its Series 2 preferred stock, which gives FlexShopper a one-year option to redeem 91% of the preferred stock at a substantial discount of more than 50% to its liquidation value of around $43 million. If fully executed, the deal would transfer $23 million of equity value to shareholders, around $1 per share, while eliminating more than $4 million currently paid in annual dividends to operating income. We expect the retirement of this obligation in an accretive manner to help FlexShopper to delever its balance sheet from a position of strength, further accelerating its growth trajectory.
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Rights Offering Launched to Equitize its Balance Sheet: FlexShopper has filed an S-1 with the SEC for an up to 70 million share rights offering, at a price of $1.70 per share, which we see as accretive to pro forma 2024 results and increasingly accretive the more capital that is raised. In its filed free writing prospectus in November 2024, FlexShopper said for every $25 million of capital raised, the company would enhance its bottom line by reducing its annual dividend and interest by $4.5 million, representing an immediate yield of 13% for new investors, starting with the elimination of the Series 2 preferred stock.
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Defending IP Position: On September 30, 2024, FlexShopper filed patent infringement lawsuits against Upbound Group Inc. and Katapult Holdings Inc., alleging infringement and unauthorized use of five key FlexShopper patents that protect FlexShopper’s computer-implemented LTO technology. We expect initial responses to be filed by early 2025 and view the Eastern District of Texas, a jurisdiction that tends to move quickly, positively for a swift adjudication pathway, which we think could lead to similar suits against other LTO companies.
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Fair Value: FPAY is trading below its LTO peers, even those low-growth companies whose operations are largely offline and operate out of legacy brick-and-mortar locations. We expect this gap to narrow significantly over time, as FlexShopper executes on its growth strategy and commands multiple expansion. Based on our enterprise value (EV)/EBITDA analysis, we see a fair value of $5.50 per share.
