Executive Summary

Record quarter: total revenues rose 22.9% to $38.6M, gross margin expanded 400 bps to 58%, adjusted EBITDA increased 44.9% to $12.2M, and diluted EPS turned positive at $0.05 .
Asset quality drove profitability: provision for doubtful accounts fell to ~22% of gross lease billings (vs ~32% LY), aided by improved underwriting, customer mix, and servicing capabilities .
Distribution flywheel accelerating: signed store count reached ~7,800 locations (≈250% YTD growth), including >3,700 Auto Parts Alliance doors; management expects further partner additions .
Capital structure actions are a potential stock catalyst: proposed rights offering and option to redeem 91% of Series 2 preferred at a 50%+ discount could lift annual net income and reduce interest/dividend burden materially .

What Went Well and What Went Wrong

What Went Well

Record revenue and EBITDA with return to GAAP profitability: “record quarterly total revenue of $38.6 million… adjusted EBITDA… $12.2 million… net income attributable to common stockholders of $1.2 million or $0.05 per diluted share” .
Gross margin expansion from retail marketplace strategy and asset quality: gross margin rose to 58% (vs 54% LY, 50% in Q2); depreciation as % of gross lease billings improved and provision rates fell YoY .
B2B partner momentum: “signed store count of approximately 7,800 locations… nearly 250% increase… upcoming rollout of over 3,700 new locations” and new partnerships (Auto Parts Alliance, Monro via PayTomorrow) .

Management quotes:

“Third quarter… record of nearly $39 million… adjusted EBITDA… more than $12 million… net income… $0.05 per diluted share” .
“Provision for doubtful accounts… 22.2% in Q3 2024 vs 32.1% in Q3 2023—a 990 bps improvement” .
“Our signed store count… approximately 7,800… includes… over 3,700 new locations associated with… Aftermarket Auto Parts Alliance” .

What Went Wrong

Loan revenue softness and partner exit: net loan revenues declined YoY (Q3: $9.0M vs $10.3M), with bank partner exiting high-APR business; state-licensed lending origination counts down 8% YoY .
Interest burden remains heavy: interest expense rose to $5.67M (vs $4.75M LY), underscoring the need for deleveraging; rights offering targets interest and dividend reductions .
Metric inconsistency on approvals: press release cites total lease funding approvals at $122.2M (up 111%), while call remarks cited $77M (up 33%); indicates definitional or reporting timing differences to monitor .

Financial Results

Metric	Q3 2023	Q2 2024	Q3 2024
Total Revenues ($USD Millions)	$31.386	$31.759	$38.589
Gross Profit ($USD Millions)	$16.935	$15.955	$22.501
Gross Margin (%)	54%	50%	58%
Adjusted EBITDA ($USD Millions)	$8.388	$4.915	$12.151
Adjusted EBITDA Margin (%)	26.7%	15.5%	31.5%
Operating Income ($USD Millions)	$5.952	$2.377	$9.557
Net Income to Common ($USD Millions)	$(0.129)	$(2.695)	$1.190
Diluted EPS ($USD)	$(0.01)	$(0.13)	$0.05
Consensus Revenue ($USD Millions)	N/A*	—	N/A*
Consensus EPS ($USD)	N/A*	—	N/A*

*Estimates unavailable due to S&P Global request limit; values would be retrieved from S&P Global if accessible.

Segment revenue breakdown:

Revenue Segment ($USD Millions)	Q3 2023	Q2 2024	Q3 2024
Lease Revenues and Fees, net	$21.082	$27.074	$28.364
Loan Revenues and Fees, net of FV changes	$10.304	$3.314	$9.047
Retail Revenues	$0.000	$1.370	$1.177

Key operating/KPI metrics:

KPI	Q3 2023	Q2 2024	Q3 2024
Gross Lease Billings and Fees ($USD Millions)	$31.267	$34.687	$36.381
Provision for Doubtful Accounts (% of Gross Lease Billings)	32.1%	22.5%	22.2%
Depreciation & Impairment of Lease Merchandise (% of Gross Lease Billings)	41.8%	39.9%	39.8%
Lease Funding Approvals (Press Release) ($USD Millions)	$57.9	$74.8	$122.2
Lease Funding Approvals (Call) ($USD Millions)	$57.9	—	$77.0

Note: Signed store count reached ~7,800 by Q3 2024 (≈250% growth YTD), including >3,700 Auto Parts Alliance doors .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Income impact per $25M net proceeds (Rights Offering)	Annual run-rate post-transaction	N/A	+$4.5M increase in net income per $25M raised	New framework
Interest Expense (Subordinated Notes payoff $10.9M)	Annual	N/A	~$2.0M reduction	New
Preferred Dividends (Redeem 91% Series 2)	Annual	N/A	~$4.4M reduction	New
Credit Facility Interest	Annual	N/A	~$2.6M reduction (partial paydown)	New
Retail Revenue	Q4 2024	N/A	Expect continued increase (seasonal boost; conversion focus)	Qualitative
Gross Margin	Forward	N/A	Margin supported by retail mix and asset quality; aim to sustain ~current levels	Qualitative

Company did not issue formal quantitative revenue/EPS guidance ranges for Q4/FY; commentary focused on operational drivers and capital structure actions .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q3 2024)	Trend
AI/Technology initiatives	Q2: expanding use of AI in targeting; plan to add prime issuer; micro sites launched . Q1: upgrades to risk analytics, underwriting/collections .	Plan to implement AI-driven automation in collections/servicing in 2025; continued tech investments .	Expanding adoption
Marketplace/Drop-ship model (supply chain)	Emphasized asset-light drop-ship with no inventory; broadened SKUs .	Reinforced asset-light model; adding categories (furniture, luxury goods) .	Reinforced
Macro backdrop (non-prime consumer)	Headwinds noted; focus on risk-based pricing; stabilizing prices . Q1 similar .	Management sees continued customer interest; job growth/low unemployment support; vigilant on slowdown risk .	Stable to supportive
Product performance/conversion	Retail revenue grew Q1 $0.78M to Q2 $1.37M; conversion under 1% with initiatives to improve .	Retail revenue at $1.18M; plan to expand marketing, add payment options; targeting higher-credit consumers for conversion lift .	Building conversion; sequential dip vs Q2
Regulatory/legal	—	Patent infringement suits vs Upbound & Katapult to defend IP .	Active litigation
B2B partnerships/door count	Q1: +580 doors target achieved; robust pipeline . Q2: +150 doors; +500 planned 2H .	Signed ~7,800 locations; Auto Parts Alliance adds >3,700; more partners expected .	Accelerating
Capital structure	—	S-1 for rights offering; option to redeem 91% Series 2 preferred at 50%+ discount .	Deleveraging actions underway

Management Commentary

Strategy and Q3 results: “Record… total revenue of $38.6 million… adjusted EBITDA… $12.2 million… net income… $0.05 per diluted share” .
Asset quality: “Provision… 22.2% in Q3 2024 vs 32.1% in Q3 2023… $2.0 million benefit” .
Marketplace economics: “Gross margin… 58% in Q3 2024 vs 54% in Q3 2023 and 50% in Q2 2024… direct result of strategies… capture retail revenue and margin” .
B2B rollout: “Signed store count… ~7,800… upcoming rollout of over 3,700 new locations with Aftermarket Auto Parts Alliance” .
Capital structure: “Redeeming… preferred stock at a 50%+ discount… increase annual net income… reduce interest/dividends” .

Q&A Highlights

Underwriting vs servicing: improvement primarily from better underwriting/fraud evaluation; enhanced customer mix; servicing improvements with planned AI automation in 2025 .
B2B ramp cadence: rollout acceptance varies; maturation typically within 6–9 months; holiday seasonality affects timing .
Q4 mix: retail component typically grows; origination surge late Q4 shows more fully in Q1 revenue due to recognition timing .
Gross margin sustainability: management targets maintaining current bad debt levels; expects margin lift from retail mix and marketing efficiency; aiming to add payment options for low-600 credit scores .
Deleveraging pathway: rights offering proceeds prioritized to delever, reduce cost of capital, and support growth; B2B channel less capital-intensive may aid equity generation .

Estimates Context

S&P Global consensus for Q3 2024 EPS and revenue was unavailable due to a request limit; we cannot present a formal beat/miss versus consensus at this time. Values would be retrieved from S&P Global if accessible.
Based on internal results, upside drivers likely to prompt estimate revisions include higher gross margin (58%), record adjusted EBITDA ($12.2M), and expanded partner footprint, while loan revenue variability and interest expense remain watch items .

Key Takeaways for Investors

FlexShopper delivered a structurally better quarter: gross margin and EBITDA hit record levels on improved asset quality and marketplace margin, with GAAP EPS positive at $0.05 .
Distribution scale is now a catalyst: ~7,800 signed stores (including >3,700 Auto Parts Alliance) should support origination growth into 2025, with a 6–9 month maturation cycle .
Capital structure actions could unlock earnings: rights offering and preferred redemption framework implies multi-million annual net income and interest/dividend savings; accretive if executed as outlined .
Watch for conversion initiatives: adding broader payment options (including for low-600 FICO) and AI-driven servicing could lift conversion and further margin efficiency in 2025 .
Loan segment mixed: net loan revenue declined YoY; state-licensed lending leadership changes and new collections partner improved cash collections; bank partner exit reduces contribution near term .
Near-term setup: Q4 seasonality typically drives higher retail activity, but revenue recognition lags; expect origination surge in late Q4 to benefit Q1 revenue .
Monitor metric definitions: reconcile lease funding approvals (press release $122.2M vs. call $77M) before modeling; favor audited 8-K exhibits but track management commentary for pipeline signaling .

FlexShopper, Inc. (FPAY)·Q3 2024 Earnings Summary