By Lisa Thompson
READ THE FULL PIXY RESEARCH REPORT
While it will need funding, ShiftPixy’s (PIXY) management said on its earnings call that its goal for calendar year 2019 is to end the calendar year serving 50,000 worksite employees compared with approximately 10,000 at the end of 2018. It plans to do this while also reaching cash flow neutral by the end of August, which is the end of its fiscal year. In its presentation at a conference on January 14th, it also stated its gross billings target for the year was $750 million. These are certainly ambitious objectives, but the company has always been impeded by being cash constrained so if given enough capital to finish development and fund working capital, who knows what it could achieve?
Gross Margin Improves Dramatically in FY Q1 2019 With Tax Reversal
While ShiftPixy missed our gross billings and revenue numbers for the quarter it more than compensated with its gross margin performance. We had expected the company to generate $2.1 million in gross margin, but it managed to achieve $3.4 million due primarily to a one-time reversal on accrued taxes. Cost of sales was $7.0 million of which approximately $3.4 million was from additional worksite employees which rose from an average of 5,470 employees for the three months ended November 30, 2017, to an average of 8,990 employees in this year’s quarter. The increase was offset by the reversal of approximately $1.0 million of California federal unemployment tax since this credit reduction was waived. If states have outstanding Federal Unemployment Account loans on January 1 of two consecutive years and have not paid off the balance by November 10, they are subject to a credit reduction on their Federal Unemployment Tax rate until the balance has been paid off. California paid its FUA loans earlier this year and has not taken out additional loans by November 10, 2018; as such the state will not be a credit reduction state for 2018. While the company reported gross margin of 32.2%, without this one-time reversal, margin would have been 22.7% up from 19.1% a year ago.
ShiftPixy reported gross billings for FY Q1 2019 ending November 30, 2018 of $70.9 million versus $40.2 million a year ago up 76%. This resulted in revenues of $10.5 million versus $6.5 million or growth of 62%
Operating expenses were $4.6 million, virtually flat with last year’s quarter. While all the other expense categories increased, software development expense in Q1 2019 was only $310,000 compared to $1.9 million a year ago. In this year’s quarter $3.2 million of development costs were capitalized versus none in 2017.
The operating loss was $1.3 million versus $3.3 million loss a year ago. Without the one-time tax reversal, this would have been a loss of $2.3 million versus $3.3 million.
Interest expense was $711,000 from amortization expense related to the debt discount and debt issuance costs. $133,333 of interest was paid in cash.
With no taxes paid, the company reported a loss of $2.0 million versus $3.3 million a year ago or a loss of $0.07 per share versus a $0.12 per share loss.
On a non-GAAP basis, taking out the tax reversal and stock-based compensation, the loss per share was $0.10 compared to the $0.12 a year ago. Average shares outstanding for the quarter were 28.9 million, up 8% from a year ago.
Estimating the average number of worksite employees in Q2 at 12,600, we estimate revenues to be $14.8 million with gross billings of $100 million. Gross margin will be lower as it normally is in the beginning of the calendar year. We expect the company to take a one-time gain of $2.6 million to reverse the registration rights penalty from FYQ4 2018 due to the settlement in December. With that one time gain, it is possible that the company will report a profitable quarter, or at least positive operating profit. We are looking for a GAAP EPS loss of $0.02 versus a loss of $0.09 a year ago.
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By Lisa Thompson