Argus Research Initiates Equity Research Report Coverage on FlexShopper, Inc. (NasdaqCM:FPAY)
Rhea-AI Summary
FlexShopper (FPAY) has received coverage initiation from Argus Research, highlighting the company's position as a leader in LTO financing for nonprime consumers. The company achieved positive net income in Q3 2024 under new leadership and has shown significant improvements in loan quality, with bad debt declining by nearly 1000 basis points year over year.
Key developments include expansion of retail partnerships to approximately 7,800 locations (250% increase from 2023), an option to purchase 91% of Series 2 preferred stock at over 50% discount, and a rights offering of up to 70 million shares at $1.70 per share. The company has also filed patent infringement lawsuits against competitors. Argus Research sets a fair value of $5.50 per share based on EV/EBITDA analysis.
Positive
- Achieved first positive net income in Q3 2024
- Bad debt reduction by nearly 1000 basis points year-over-year
- Retail partnerships expanded to 7,800 locations (250% increase from 2023)
- Option to purchase 91% of Series 2 preferred stock at >50% discount, potentially saving $4M in annual dividends
- Rights offering at $1.70 per share expected to be accretive to 2024 results
Negative
- Potential dilution from 70 million share rights offering
- Ongoing patent litigation outcomes uncertain
News Market Reaction – FPAY
On the day this news was published, FPAY declined 2.70%, reflecting a moderate negative market reaction.
Data tracked by StockTitan Argus on the day of publication.
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
- 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.
- 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.
- 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 - 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. - 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 than50% to its liquidation value of around$43 million $23 million $1 $4 million - 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 $25 million $4.5 million 13% for new investors, starting with the elimination of the Series 2 preferred stock. - 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. - 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
INVESTMENT THESIS: Click Here to view full Argus Equity Research Report and Investment Thesis.
About FlexShopper, Inc. (NasdaqCM:FPAY) www.flexshopper.com
Founded in 2013,
For more information please contact:
For FlexShopper:
Investor Relations
ir@flexshopper.com
Investor and Media Contact:
Andrew Berger, Managing Director
SM Berger & Company, Inc.
Tel: (216) 464-6400
andrew@smberger.com
About Argus Research Corp.
Headquartered in NYC, Argus Research (www.argusresearch.com) is a leading independent equity research firm (est. 1934) ̶ providing fundamental and quantitative research coverage on more than 1,600 companies across all 11 sectors of the S&P 500, as well as macroeconomic and equity market forecasts, thematic research, model portfolios and IPO research. In addition, Argus has recently committed to providing a company sponsored research solution for small & mid-cap companies seeking coverage. Argus's CSR Research Reports & earnings estimates (if applicable) are available on major research / earnings estimate aggregator platforms, including Bloomberg, Thomson Reuters, Factset and S&P Global.
For more Information please contact:
Darrell Stone
646-747-5438
dstone@argusresearch.com
Argus Research Co. has received a flat fee from the company discussed in this report as part of a Sponsored Research agreement between Argus and the company. No part of Argus Research's compensation is directly or indirectly related to the content of this assessment or to other opinions expressed in this report. Please refer to the full Argus report and the disclaimer for complete disclosures.
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SOURCE Argus Research
FAQ
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