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ShiftPixy (PIXY) Notifies of Late Filing, But Reports Preliminary FY 2017 Income Statement

12/01/2017
By Lisa Thompson

NASDAQ:PIXY

Last night, ShiftPixy (NASDAQ:PIXY) filed a Form 12b-25 Notification of Late Filing, for its 10K for the year ending August 31, 2017. The company now has 15 days to finish its audit, (which it believes will be issued without qualification) and report results on or before December 14, 2017.

According to this filing, the company has “a financial statement account of $460,000, representing accumulated entries and reconciliations recorded collectively as Miscellaneous Expense, which the company has endeavored unsuccessfully to detail. The account exists because of our limited staff, rapid growth, and software systems that are not integrated, all of which have collectively worked to make many of our reconciliation processes more challenging. (The) auditors have indicated that the amount at issue exceeds their materiality threshold, and they will need further information regarding the stated amount in order to issue the audit report without qualification.” ShiftPixy has hired a forensic accounting firm to further analyze the expenses in this Miscellaneous Expense account and to help provide additional detail to the auditors.

This $460,000 is now allocated to G&A in the financial statement that was released in this filing. Once these expenses are identified and correctly categorized in the right line items, (i.e. Cost of Goods, G&A, S&M, or Product Development) individual line items may be adjusted but the over top and bottom line are expected to remain the same. If these expenses are determined to belong in G&A, nothing will change. We also think there could be a restatement of the historical quarters to reflect this recategorization if the expenses do not remain in G&A. 

Preliminary Unaudited Income Statement for Fiscal Year Ending August 21, 2017

The company issued a preliminary unaudited income statement, which shows gross billings of $126.4 million for the year (up 149%) and net revenue of $20.4 million (up 141%) versus gross billings for the 2016 year of $50.7 million and revenues of $8.5 million. Gross billings increased as the number of worksite employees grew from 3,463 at fiscal year end 2016 to 5,074 at fiscal year end 2017, up 46.5%. While gross billings and revenues were only about a million short of our estimate, gross margin was $2 million short. Gross margin for the year was 20.0% for the year versus 17.9% last year. Billings and revenues were both up sequentially.

Gross margin was down due in Q3 to additional investments in workers compensation programs needed to on-board new clients beginning in June 2017 and we hypothesize this was the same in Q4. 

Operating expenses for the year were $11.5 million. Included in that amount is $328,000 in a one-time stock based compensation charge that was related to the IPO. Last year, the company spent $3.4 million on operating expenses.   

The net loss for the year was $7.5 million versus $1.9 million a year ago. Excluding one-time expenses the loss would have been $7.2 million. This loss resulted in EPS of $0.28 per share versus breakeven last year. The average share count in 2017 was 26.8 million versus 25.6 million a year ago. 

Q4 2017 Results 

For Q4 2017 ending August 31, 2017 the company reported a preliminary $33.1 million in gross billings, inline with the $34 million we expected, and flat with last year. Net revenue was $4.7 million below the expected $6.1 million, and down 21% on a year over year basis. 

Cost of goods was $5.3 million resulting is a negative gross margin of $679,000. Last year with similar gross billings, cost of goods was $5.1 million, but resulted in a positive $746,000 of gross margin. The company says this is due to “catch up” expenses in the 2017 quarter, although what expenses they were is unclear.

Spending on on-boarding and product development was expected to be heavy this quarter as backlog was brought on and the App was launched. The company to reported a net loss of $5.0 million (versus an expected $3.5 million) or $0.17 per share versus a loss of $1.2 million and $0.05 per share last year. 

This quarter that ended November 30, we believe that revenues continued to ramp but we are holding off on putting out quarterly forecasts or adjusting 2018 estimates until the company releases it audited 10K and reports earnings. 

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