BOCA RATON, Fla. - FlexShopper, Inc. (NASDAQ:FPAY), a prominent online lease-to-own retailer and payment solutions provider, announced today plans to redeem a significant portion of its Series 2 Preferred Stock. The company has secured a purchase option agreement which allows it to buy back 91% of the aforementioned stock at more than a 50% discount from its second-quarter 2024 liquidation preference, which was approximately $43 million.
The agreement stipulates that the option to purchase is valid for one year, with the discount rate contingent on the date of repayment. Additional payments to the seller may be required based on the purchase price in the event of a change of control within the next 12 months or announcements of patent settlements in the next 24 months.
FlexShopper's CEO, Russ Heiser, expressed optimism about the redemption's potential to enhance shareholder value. He pointed out that this move could improve the company's cost of capital, simplify the capital structure, and transfer roughly $23 million of equity value to common shareholders, equating to about $1 per share. Heiser also noted that the transaction is expected to be highly accretive to earnings, contributing approximately $4 million to annual operating income.
The expected benefits for FlexShopper include a material discount in liquidation preference price, an increase in common equity value, and a significant contribution to earnings. The company anticipates saving around $4 million in annual payment-in-kind (PIK) dividends as a result of this repurchase. Moreover, the repurchase transaction is projected to be highly beneficial to net income for both common and Preferred Series 1 shareholders once completed.
Pro-forma valuation models suggest that the redemption of 91% of FlexShopper's Series 2 Preferred Stock could lead to a 76% increase in common equity value and a potential 76% rise in share price, from $1.28 to $2.25.
FlexShopper is a leader in providing flexible payment options to consumers, offering a range of funding solutions through its online marketplace and partnerships with merchants. The company's strategic move to redeem preferred stock is based on a press release statement and aims to strengthen its financial position and deliver value to its shareholders.
In other recent news, FlexShopper, Inc. has significantly expanded its authorized common stock from 40 million to 100 million shares. This development was confirmed at the recent annual meeting. The company has also initiated legal proceedings against Upbound Group, Inc., and Katapult Holdings, Inc., alleging unauthorized use of its patented lease-to-own technology. The legal representation for this case is Quinn Emanual Urquhart & Sullivan LLP.
Furthermore, FlexShopper is seeking both injunctive relief and monetary damages in these lawsuits. The outcome of these proceedings could potentially affect the operations of companies within the lease-to-own market. Despite these legal actions, FlexShopper maintains its Buy rating from H.C. Wainwright. These are among the recent developments surrounding FlexShopper, Inc.
InvestingPro Insights
FlexShopper's (NASDAQ:FPAY) strategic move to redeem a significant portion of its Series 2 Preferred Stock aligns with several key financial indicators and trends highlighted by InvestingPro data.
The company's revenue growth is noteworthy, with a 23.81% increase over the last twelve months as of Q2 2024, and an even more impressive 29.46% quarterly growth. This robust top-line expansion supports FlexShopper's ability to undertake such a significant financial restructuring.
Moreover, FlexShopper's gross profit margin stands at a healthy 86.83%, indicating strong pricing power and operational efficiency. This high margin provides the company with financial flexibility to pursue value-enhancing initiatives like the preferred stock redemption.
An InvestingPro Tip points out that FlexShopper has seen a "significant return over the last week," with data showing a 21.71% price return in the past week. This recent market enthusiasm could be partly attributed to the announcement of the stock redemption plan, as investors anticipate improved shareholder value.
Another relevant InvestingPro Tip notes that the company's "liquid assets exceed short-term obligations," which suggests FlexShopper is well-positioned to execute this redemption without compromising its financial stability.
It's worth noting that InvestingPro offers 11 additional tips for FlexShopper, providing investors with a more comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable when assessing the potential impact of major corporate actions like the preferred stock redemption.
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