Executive Summary

Q1 2024 delivered solid YoY improvements: total revenues rose 10.1% to $33.9M, gross profit +30.9% to $17.8M, adjusted EBITDA +18.4% to $7.6M, and operating income +19.0% to $5.0M; diluted EPS was $(0.06), flat YoY .
Asset quality and unit economics improved: provision for doubtful accounts fell to 26.9% of gross lease billings (vs 32.8% LY) and depreciation of lease merchandise declined to 41.6% of billings (vs 44.8% LY), aided by retail margin on goods sold through the marketplace .
Strategic initiatives ramped: additional payment option launched in late February drove ~$0.8M incremental revenue, retail revenues debuted at $0.78M, marketing spend rose 60% YoY to support traffic and conversion; store footprint expanded by ~580 doors ahead of plan .
Liquidity enhanced: on March 27, 2024, the company entered a new $150M credit facility (SOFR + 9%), with commitment termination April 1, 2026 and repayment one year thereafter, supporting growth in leases and marketplace sales .
Potential stock reaction catalyst: improving credit metrics and monetization of non-leasing traffic via retail and new payment options create a higher-conversion funnel and support margin resilience amid nonprime consumer headwinds .

What Went Well and What Went Wrong

What Went Well

Asset quality improved materially: “provision for doubtful accounts as a percentage of gross lease billings and fees was 26.9% in Q1 2024 vs 32.8% in Q1 2023,” a ~590 bps improvement, yielding a $1.75M benefit YoY .
Marketplace monetization expanded: retail revenues debuted ($0.78M) and a new payment partner contributed ~$0.8M revenue from late February, increasing conversion of existing site traffic .
Profit metrics strengthened: gross profit rose 30.9% to $17.8M; adjusted EBITDA increased 18.4% to $7.6M; operating income climbed 19.0% to $5.0M .

Management quotes:

“We expect retail revenue to grow over the coming quarters...and add other funding options to appeal to both prime and nonprime consumers” .
“Depreciation...as a percentage of gross lease billings...41.6% in Q1 2024 vs 44.8% LY,” driven by product margin on goods sold via leases .
“FlexShopper lease origination dollars grew again year-over-year in Q1,” with a new tire partnership running ahead of expectations .

What Went Wrong

Persistent net loss: net loss was $(0.214)M; diluted EPS remained $(0.06), unchanged YoY despite stronger operating results .
Elevated interest expense: interest expense rose to $5.315M (vs $4.531M LY), limiting flow-through from improved operations .
Nonprime consumer headwinds: management noted macro pressure on nonprime consumers; marketing spend increased 60% YoY to drive volumes, increasing OpEx .

Financial Results

Summary Performance vs Prior Periods

Metric	Q3 2023	Q4 2023	Q1 2024
Total Revenues ($USD Millions)	$31.386	$30.3 (net lease and loan revenues)	$33.945
Gross Profit ($USD Millions)	$16.935	$15.8	$17.8
Operating Income ($USD Millions)	$5.952	$5.6	$5.044
Adjusted EBITDA ($USD Millions)	$8.388	$8.1	$7.577
Net Income (Loss) ($USD Millions)	$0.940	$(0.715)	$(0.214)
Diluted EPS ($USD)	$(0.01)	$(0.03)	$(0.06)

Notes: Q4 2023 revenue is disclosed as “net lease and loan revenues and fees” in the 8-K release .

Margins (Derived from reported figures)

Margin	Q3 2023	Q4 2023	Q1 2024
Gross Profit Margin (%)	53.9%	52.1%	52.4%
Operating Margin (%)	19.0%	18.5%	14.9%
Net Income Margin (%)	3.0%	(2.4%)	(0.6%)

Revenue Components

Revenue Component	Q1 2024 ($USD Millions)
Lease revenues and fees, net	$25.834
Loan revenues and fees, net of changes in fair value	$7.331
Retail revenues	$0.780
Total revenues	$33.945

KPIs and Operating Drivers

KPI	Q1 2023	Q1 2024
Total Fundings ($USD Millions)	$26.3	$26.0
Provision for doubtful accounts (% of gross lease billings)	32.8%	26.9%
Depreciation & impairment of lease merchandise (% of gross lease billings)	44.8%	41.6%
Marketing Expense ($USD Millions)	$1.099	$1.766
Salaries & Benefits ($USD Millions)	$2.727	$4.084
Adjusted EBITDA ($USD Millions)	$6.399	$7.577
Core Earnings ($USD Thousands)	$215	$354

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Marketing spend cadence	FY 2024	“More than double by year-end” in online channel (monetized by wholesale margin)	Target ~20% QoQ growth, scaled with success of additional funders; aim to keep margin equal to online marketing spend	Maintained/Operational cadence clarified
Retail expansion (doors)	H1 2024	Planned ~580 doors by mid-May	Achieved by end of April	Achieved earlier
Payment options (marketplace)	FY 2024	Mid-Feb launch; ~$750k sales first ~2 months; >20% markup	Late Feb start; ~$0.8M Q1 revenue; expand payment options to increase conversion	Continuing expansion
Spanish-language leases	Q2 2024	Not previously specified	Offer leases in Spanish in select verticals beginning Q2	New initiative
Retailer POS channel rollout	2024	Pilot improving throughput >200%; plan rollout to ~1,600 stores by end of summer	Q1: Tire partner rollout ahead of expectations; pipeline robust	Progressing per plan

No explicit quantified revenue/EPS/margin guidance ranges were provided in Q1 2024 materials .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2023, Q4 2023)	Current Period (Q1 2024)	Trend
AI/technology initiatives	Generative AI for microsites; content creation; ML-driven fraud and risk models	Continued microsite rollout; enhanced fraud algorithms and risk-based pricing	Expanding adoption
Marketplace monetization	Plan to add payment options; ~$750k sales with >20% markup in first 2 months	Late Feb start; ~$0.8M revenue; retail revenue line added; expect further payment options	Scaling up
Asset quality	Bad debt % improved YoY in Q3/Q4; tightening underwriting	Provision % down to 26.9% (from 32.8%); continued early payment favorability	Improving
Retailer channel expansion	+720 stores since YE 2023; +580 planned by mid-May; pilot to boost throughput 2x in ~1,600 stores	580 achieved by end of April; tire partner rollout ahead of plan	Executing ahead of plan
Macro/nonprime consumer	Seasonal demand patterns; focus on asset returns; tighten where needed	Nonprime headwinds persist; vigilant on potential slowdown; continue to balance pricing and engagement	Cautious but constructive
Product mix/supply chain	No inventory dropship model; expand SKUs (appliances, furniture, specialty)	Add more SKUs; electronics-focused microsite launched; expand categories over time	Diversifying beyond electronics

Management Commentary

“We expect retail revenue to grow over the coming quarters...add other funding options...to appeal to both prime and nonprime consumers. We want to provide monetization options for all visitors and channel margins back into marketing” — CEO remarks .
“Provision...26.9% in Q1 2024 vs 32.8% LY...$1.75M benefit. Depreciation...41.6% vs 44.8% LY...~$660k benefit. We launched a payment solution partner in Q1, resulting in ~$800k revenue” — COO remarks .
“Adjusted EBITDA up 18% YoY to $7.6M; we will remain vigilant regarding potential slowdown, but see customer interest with job growth, low unemployment and stabilizing prices” — COO closing .

Q&A Highlights

Seasonality: Traditional pattern persists (large Q4, tempered Q1; tax refund payoffs), with goal to mitigate via broader SKUs and payment options .
Retail revenue timing: Additional payment options began late February, contributing partial-quarter revenues .
Marketing outlook: Plan to grow marketing spend about 20% per quarter, scaled with funder onboarding and margin parity with spend; caution on diminishing returns .

Estimates Context

Wall Street consensus (S&P Global) for Q1 2024 EPS and Revenue was unavailable due to data access limitations at the time of this analysis; therefore, comparisons to consensus cannot be provided.
Given stronger gross profit and improved credit metrics, sell-side models may need to reflect better unit economics and contribution from retail/payment partners as these scale through 2024 .

Key Takeaways for Investors

Unit economics are improving: lower loss rates and depreciation as a % of billings, coupled with retail margin, support sustained gross profit strength despite nonprime headwinds .
Conversion lever via payment partners: monetizing non-leasing visitors with new funders creates incremental revenue and allows disciplined marketing scale tied to margin .
Operating momentum across channels: retailer footprint expansion is ahead of plan; tire partnership rollout and pilot throughput improvements should support originations growth into summer .
Liquidity runway: new $150M credit facility underpins funding capacity for leases and marketplace growth initiatives .
Watch interest expense: higher interest cost remains a drag on net income; operating improvements need to outpace financing costs to drive EPS inflection .
Near-term trading: catalysts include additional funders added to the marketplace, visible retail revenue growth, and asset quality metrics in upcoming quarters; risks include macro pressure on nonprime consumers and marketing efficiency limits .
Medium-term thesis: diversified monetization (lease + loan + retail), technology-driven underwriting, and expanding POS partnerships can compound revenue and gross margin while smoothing seasonality; monitor execution on microsites, Spanish-language offering, and store rollouts .

FlexShopper, Inc. (FPAY)·Q1 2024 Earnings Summary