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PIXY: With FYQ4 Growth Over 120% Expectations Are Beat Again

12/04/2018
By Lisa Thompson

NASDAQ:PIXY

READ THE FULL PIXY RESEARCH REPORT

As word spreads, ShiftPixy (NASDAQ:PIXY) continues to gain customers at a rapid pace due to its value proposition and unique capabilities. ShiftPixy reported earnings for FY 2018 ending August 31, 2018 with an upside surprise on revenues and a disappointing and unexpected penalty expense of $3.5 million from its recent convertible offering. Financials were once again restated as Marcum reaudited 2017 while auditing 2018 and the balance sheet now looks significantly different from last quarter. The balance sheet reporting is now aligned with competitors such as Insperity (NSP.) The extended audit time caused the company to miss its filing date as well as the date for getting approval from the SEC for its convertible offering, and as a result was forced to pay a penalty of $3.5 million to the convertible investors. With this penalty, another $1.4 million in product development expense, and $1.4 million in interest expense (of which $133,333 was cash), the GAAP loss per share was much higher than expected at $0.30 versus an estimated $0.06. On a non-GAAP basis, taking out the penalty, one-time debt issuance costs, and stock-based compensation, the loss was halved to $0.15 per share for Q4 2018.

On the plus size, gross Q4 gross billings came in at $73.4 million versus $33.2 million a year ago (up 121%) and $60.2 million in Q3 2018. Revenues again beat our estimate at $11.2 million versus $4.7 million last year, up 138%. Billings and revenues both accelerated from Q3 2018 growth. Revenue was 15.2% of gross billings slightly down from Q3’s 15.6%, but up from last year’s 14.2%.

The company reported that it had added 13 new clients since the end of August. With these new clients it now services roughly an additional 1,230 new worksite employees (up 8,540 from at August quarter end,), which puts the current number at 9,770. The company said these incremental worksite employees should generate approximately $28 million in additional gross billings per year. We know that in general, the greatest addition of worksite employees comes right after December 31, as many customers want to end the calendar year before changing systems because of both the tax year, and because many have workers’ compensation insurance policies that also run out at year-end. In an October interview available on YouTube with Stock Talk Today, the company’s CEO stated that we “are at about 10,000 [shifters], that number would probably double come January 1, because we have a lot of new clients getting ready to board for January 1.” If this is the case, there should much higher revenues in 2019. Using the last example of 1,230 employees adding a $28 million in gross billing run rate, could 10,000 add $228 million? This would equate to incremental revenues of $38 million at a 16.5% of gross billings. If we say the company will do $265 million in calendar year 2018, this $228 million gets it to $493 million.

Gross margin as a percent of revenues came in at 16.3%, much higher than last year when incorrect accruals during the year caused the margin to be 3.9%.

Operating expenses were $9.0 million versus 4.0 million in last year’s quarter. Included in this number is the one-time $3.5 million penalty. Taking this out, total expense was $6.5 million, up only 39%.

The operating loss, without the penalty was $3.7 million versus $3.8 million a year ago.

Interest expense was $1.5 million of which $133,333 was paid in cash, $765,000 was the cost for issuing the convertible stock, and the rest was amortization of debt discount and penalty expense. With no taxes paid, this loss resulted in an EPS loss of $0.30. This compares with a restated loss of $0.13 a year ago. On a non- GAAP basis the loss per share was $0.15.

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