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ShiftPixy, Inc. (NASDAQ:PIXY) Q3 2019 Results Earnings Conference Call July 22, 2019 8:30 AM ET
Vance Edelson - IR, ICR
Scott Absher - Chief Executive Officer
Patrice Launay - Chief Financial Officer
- Vance Edelson - IR，ICR
- Scott Absher - 首席执行官
- Patrice Launay - 首席财务官
Greetings and welcome to the ShiftPixy Fiscal Third Quarter 2019 Financial Results Conference Call. All participants will be in a listen-only mode.
I'll now turn the call over to Vance Edelson with ICR.
- 欢迎参加ShiftPixy 2019财年第三季度财务业绩电话会议。 所有参与者都将处于只听模式。
- 我现在用ICR将电话转到Vance Edelson。
Thank you operator and welcome everyone to this morning's call. I'm here with ShiftPixy's CEO, Scott Absher; and CFO, Patrice Launay.
Before we begin, I want to remind everyone that today's call will contain several forward-looking statements, all of which are subject to risks and uncertainties and the Company assumes no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are detailed in today's press release and in the Company's SEC filings, could cause actual results to differ materially from those in the forward-looking statements.
On today's call, management will be referring to certain non-GAAP financial measures. These non-GAAP measures allow investors to analyze operating trends and compare results of operations in the current period to prior results based on the Company’s fundamental performance. Also any comparisons made today to prior period results are based on a comparison to the same period in the prior year unless otherwise stated.
Within the past hour, ShiftPixy released its financial results for the fiscal third quarter ended May 31, 2019. If you do not have a copy of the press release, please visit the Investor Relations section of the Company’s website.
With that, it is my pleasure to hand the call over to ShiftPixy's Chief Executive Officer, Scott Absher.
谢谢运营商，欢迎大家参加今天上午的电话会议。我和ShiftPixy的首席执行官Scott Absher在这里;和首席财务官，Patrice Launay。
Thank you, Vance, and good morning, everyone. We appreciate you joining our call and we're excited to bring you up to date on our rapid progress. For anyone who is new to the ShiftPixy storey we invite you to visit our website to learn more about how we are bringing a proprietary sophisticated and compliance oriented technology platform to the gig economy, one that helps businesses with the many burdensome compliance requirements they face while affording shift workers the opportunities and flexibility they crave.
Right now, I'd like to dive in with the highlights of our quarterly performance and some very recent announcements we've made before turning over to Patrice who will walk us through the financials in operating metrics in greater detail. We will then close with a Q&A session.
During our quarter ended May 31, ShiftPixy's rapid growth continued driven by increased penetration of our target markets. Taking a look at the overall numbers our gross billings climbed 57% versus the prior year third quarter including a 14% increase just since the February quarter. This growth was the result of the growing average number of worksite employees on our platform which by the end of May had reached 10,860 or increase of 50% over the past year.
We're also pleased to report a higher gross profit of $2.7 million despite the early stage nature of our business. And it is gratifying to see the rapid acceptance of our platform by both employers and employees alike, who clearly appreciate the value of our business proposition. What's more exciting is that we're quickly approaching the next important phase of our business.
For several quarters now we've been quickly signing up new operators and thousands of workers, all in an effort to build the critical mass necessary for the next phase. Over the next several weeks we plan to actually turn on robust functionality of the sophisticated platform our developers have been so hard at work on. This is an exciting inflection point for us at ShiftPixy and one that we believe will further stir adoption of our platform and therefore our own growth profitability and efforts to create shareholder value.
Our self delivery platform in particular is arriving at the perfect time to help our growing number of restaurant operator clients. We view this innovative extension of our human capital platform at the National Restaurant Association show in May and it is already receiving strong reception in the marketplace. With the [indiscernible] economy rapidly expanding, our clients welcome the opportunity to address their toxic turnover and delivering quality issues, not to mention their own profitability challenges stemming from the advent of self delivery without having to invest in expensive technology.
Related to creating shareholder value, last week we announced a stock repurchase plan reflecting our belief that recent share prices haven’t adequately reflected our significant progress since going public in June 2017. Our Board has granted authorization to repurchase up to 10 million shares of our common stock and it is our intention to opportunistically buy back shares as we feel appropriate while course also investing what is necessary to continue ShiftPixy's rapid growth. And more on this in Q&A I'm sure.
I'll now turn the call over to Patrice, who will take us through the quarterly results in greater detail and provide an update on our improving liquidity outlook and our progress reaching cash flow breakeven.
Thank you, Scott. It's my pleasure to provide everyone with an update this morning. Starting with the top line, our fiscal third quarter results includes gross billings of $94 million reflecting 14% sequential growth and 57% growth over the same period last year. As Scott mentioned, our average number of worksite employees during the quarter was 10,860 and that reflects 12% sequential growth and 50% growth year-over-year. Our gross profit expanded to $2.7 million from $1.5 million the prior year third quarter and that reflects the gross margin of 19% up from 17% a year earlier.
Similar to last quarter the higher gross margin is attributable to the scale advantage in our Workers' Compensation programs, as well as favorable outcome in employer payable taxes. We generated a net loss per diluted shares of $0.15 compared to a net loss per diluted share of $0.06 the prior year quarter.
Turning to the balance sheet now, we ended up the month of May with approximately $2.9 million in cash which was above the $1.6 million level at the start of our fiscal year in September. I want to provide a feel for our improving financial outlook as well. As Scott mentioned we're reaching an improvement flexion point at ShiftPixy, during which our growth should benefit from the activation of greater functionality of our platform.
Even ahead of this, just half way through our fiscal fourth quarter 2019 which ends on August 31, it appears our growth has remained robust, specifically we've brought on board another 17 new clients since the end of May, which have added approximately 6000 new worksite employees generating roughly $29 million in additional annual revenue.
From a cash flow standpoint we anticipate achieving breakeven towards the end of our first quarter of fiscal 2020. In other words by November and once again we believe the activation of user functionalities will significantly improve our operating and financial metrics.
I think we are going to set some of our remarks along convertible debt activity and move on our newly announced share repurchase program for Q&A session that Vance will now walk us through. Once again, we ask members of the investment community to send us their questions which cover these topics. Vance?
Thank you, Patrice. So we received a really interesting and diverse set of questions this quarter, but I want to start right in with a couple of questions on what many investors consider to be the heart of the matter. So for starters, many want to know about the 8-K filing that announced the conversion requests by the 2018 and 2019 convertible bond holders would no longer be honored putting you into a voluntary default on these instruments. So Scott, were what is the thinking there?
谢谢，帕特里斯。 因此，本季度我们收到了一系列非常有趣且多样化的问题，但我想从几个问题开始，关于许多投资者认为是问题的核心问题。 所以对于初学者来说，很多人都想知道宣布2018年和2019年可转换债券持有人的转换请求的8-K申请将不再受到尊重，从而使您自愿违约。 那么斯科特，那里有什么想法？
Sure Vance, I appreciate the opportunity to explain why we decided it was best for ShiftPixy to force the notes into default. In simple terms we believe our former bankers offered poor advice leading us down the path that eventually harmed our share price and made additional capital raising an unattractive option given where our stock was trading. We've now taken two steps to rectify the situation. The first was ceasing to honor the convertible bond redemption request which we we're constantly punishing our stock price, and the second is, the stock buyback program we just announced on Friday. It is our hope that these two actions will allow ShiftPixy shares to start to better reflect the steady progress we are making executing our business plan.
Sure Vance，我很高兴有机会解释为什么我们认为最好让ShiftPixy强制将笔记置于默认状态。 简单来说，我们认为我们的前银行家提供了糟糕的建议，导致我们走上最终损害我们股价的道路，并在我们的股票交易时提供额外的资本筹集不具吸引力的选择。 我们现在采取两个步骤来纠正这种情况。 第一个是停止兑现可转换债券赎回请求，我们不断惩罚我们的股票价格，第二个是我们在周五宣布的股票回购计划。 我们希望这两项行动将使ShiftPixy股票开始更好地反映我们正在执行业务计划的稳步进展。
Okay got it, and then one investor has a follow-up which is, how are the negotiations with the convert holders going and is negotiations still a fair way to describe it or has it kind of moved beyond that?
We're talking with them and we hope to come to a mutually beneficial arrangement. In other words we think there's a lot of future value in ShiftPixy stock and ideally that can be a benefit to all our stakeholders including the converts.
Okay, I understood. And what's really a closely related question, what are you doing to address the notification from NASDAQ that due to where shares were trading you had six months to regain compliance with their listing requirements. It sounds like the steps you just described are also designed to address this issue as well?
好的，我明白了。 什么是一个密切相关的问题，你在做什么来解决纳斯达克的通知，由于股票交易的地方，你有六个月的时间重新获得对其上市要求的遵守。 听起来你刚刚描述的步骤也是为解决这个问题而设计的？
That's right Vance. It is our hope that ceasing the conversions which were a primary reason for the pressure on the stock and by opportunistically buying back shares in the open market, we can now support our share price, hopefully move the stock above the $1 threshold for the NASDAQ listing and hopefully quite a bit higher than that.
这是对的万斯。 我们希望停止转换是股票压力的主要原因，并通过机会主义买回公开市场的股票，我们现在可以支持我们的股价，希望将股价提升至纳斯达克上市的1美元门槛之上 并希望相当高一点。
All right, fair enough. This is then maybe a related question for Patrice, what are the mechanics around the buyback, are there specific open windows in which you need to operate and any other limitations or thoughts you have around how you will execute on the buyback?
Sure Vance. As always there are some timing volume restriction for any share buyback program, but overall we tend to repurchase as the market conditions warrant.
Okay, makes sense. Maybe back to you Scott on this next one, this is a question we haven’t received before probably because ShiftPixy is still quite new. Are any of your current contracts up for renewal in the next few months?
好的，有道理。 也许在下一个回到你的Scott，这是我们之前没有收到过的一个问题，可能是因为ShiftPixy仍然很新。 您目前的合约是否会在未来几个月内续约？
Vance, our business operated clients sign 12 month auto renewal service agreements. The only times we review these auto renewals is in the case where Worker's Compensation losses caused us to reevaluate, re-price or remove the client. Our business does not have the contract ebb and flow which is why our revenue continues to stack quarter-over-quarter.
万斯，我们的商业运营客户签署了12个月的汽车续订服务协议。 我们审查这些汽车续费的唯一情况是工人赔偿损失导致我们重新评估，重新定价或移除客户。 我们的业务没有合同起伏，这就是为什么我们的收入继续按季度增长。
All right, thanks for that. Another new quarter this quarter, do you have any plans for advertising your videos on social media like Facebook or Reddit or is your Youtube platform your main focus?
Our target clients don’t feed on social media. So we keep our industrial messaging on platforms that help us support the brand. Once we open up the doors to hiring [ph] shifters from outside of our platform, we intend to leverage the other social media platforms.
我们的目标客户不以社交媒体为食。 因此，我们将工业信息保存在有助于我们支持该品牌的平台上。 一旦我们打开从平台外部雇用[ph]移位器的大门，我们打算利用其他社交媒体平台。
All right, that's good to hear. Now here're one we received probably a month or two ago and I think would be helpful for everyone to hear the answer, why is the app showing far fewer than 10,000 downloads when on your last conference call you mentioned there were close to 10,000 shifters already?
好的，听到这个很好。 现在这是我们可能在一两个月前收到的一个，我认为这对每个人都有帮助可以听到答案，为什么在上次电话会议上你的应用显示远远少于10,000次下载，你提到有近10,000个移位器 已经？
Sure, that's an easy one. When we launched a new version 2.0 the app, the app store counter for us reset. With the new features being released, you'll see those numbers tick up.
当然，这很简单。 当我们推出新版本的应用程序时，应用商店计数器为我们重置。 随着新功能的发布，您会看到这些数字。
Okay, very good. Here is a question we seem to get every quarter, are you pursuing any new contract? I think you've explained the process in recent quarters Scott, but feel free to elaborate?
好的，非常好。 这是我们每个季度似乎都会得到的问题，您是否正在寻求任何新合同？ 我想你已经在最近几个季度斯科特解释了这个过程，但是可以随意详细说明吗？
As I stated last quarter, our approach is always to the franchised operators under various national brands. Once we engage an operator under one of those national brands we approach the rest. So you won't see "major clients" but rather depth within the brands whose operators we are continuing to stack.
正如我上个季度所述，我们的方法始终是针对各种国家品牌的特许经营者。 一旦我们与其中一个国家品牌的运营商合作，我们将接触其余的品牌。 因此，您不会看到“主要客户”，而是深入了解我们将继续堆叠的运营商的品牌。
Got it. Here's another question that I think you've also covered before, but perhaps it's worth a refresh. Do you think – who do you think the company's biggest competitors are?
得到它了。 这是我认为你之前也讨论过的另一个问题，但也许值得刷新。 你认为 - 你认为公司的最大竞争对手是谁？
There is no one serving the markets we serve with the same strategy and technology stack. We see people doing pieces of what we do in other markets. So right now we're a first mover in a wide open market.
没有人为我们服务的市场提供相同的战略和技术堆栈。 我们看到人们正在做我们在其他市场做的事情。 所以现在我们是一个开放市场的先行者。
Okay great. A lot of investors ask about upcoming catalysts in this investor rights with potential events, oh sorry, what potential events should we be watching for over the coming few months? So perhaps you can provide a rough timeline Scott, of what's on tap in terms of future rollouts?
好，太棒了。 许多投资者询问有关潜在事件的投资者权利即将到来的催化剂，对不起，未来几个月我们应该关注哪些潜在事件？ 那么也许你可以提供一个粗略的时间表Scott，关于未来推出的内容？
Well, hopefully by now shareholders and observers see the pattern of growth and can see that we will improve a little every month with our recurring revenue model. That steady growth, along with our continually improving cash flow should come as no surprise because of the business model. The events I keep an eye on are population growth and geographic expansion, getting critical mass and the national footprint really laid the groundwork for a much more rapid growth.
好吧，希望现在股东和观察者看到增长模式，并且可以看到我们每个月都会通过我们的经常性收入模式来改善。 由于商业模式，这种稳定增长以及我们不断改善的现金流量应该不足为奇。 我一直关注的事件是人口增长和地域扩张，获得临界质量和国家足迹确实为更快速的增长奠定了基础。
Interesting, all right thanks for that. Let's transition over to a couple questions for Patrice before wrapping up. Investors of course want to know about the path to breakeven and how growth in the business and the revenue that growth provides, how that offsets the R&D expense and other spending needs? So what can you share with us there Patrice?
有意思，好的，谢谢你。 在结束之前，让我们过渡到Patrice的几个问题。 投资者当然希望了解盈亏平衡之路，以及业务增长和增长带来的收入，如何抵消研发费用和其他支出需求？ 那么Patrice你能和我们分享什么？
Sure Vance. I would like to remind everyone that as an early stage company we will continue to invest in the business model to end up what we consider to be tremendous potential, and to leverage our market advantages. We are also very comfortable with our growth trajectory and this growth positive contribution to cash flow. And that our investment in our operations staff and takes [indiscernible] give us sufficient capacity to support growth. We are seeing without having to add our fixed [indiscernible].
However, we anticipate an increase in our operating expense as we begin to build our software development team internally and also from a licensing agreement related to our sub delivery solution. This will allow us to expedite the technology department which should further accelerate the growth of the company. Assuming expenditures are paid as incurred in outside of product development the company is now burning approximately $2 million per quarter or slightly less than $700,000 per month, we expect to generate additional cash flow from the growth of our base of client and worksite employees as well as the better monetization of our baseline engagement.
The company is beginning to onboard larger clients and franchisees of national brands producing significant increases in the number of worksite employees as businesses here value position as necessary for their own success. With the added fixed overheads the company will hit breakeven by the end of our fiscal first quarter of 2020 as I mentioned in prepared remarks. We believe the critical mass is now between 22,000 and 24,000 will be added overheads.
All right, thanks for all that color Patrice, and let's finish off with an interesting question which I think reflects ShiftPixy's unique nature. This investor wants to know how to classify the company. Are you just another technology or software company or how do you really see yourself and may be you can take a stab at that one too Patrice?
好吧，感谢Patrice的所有颜色，让我们以一个有趣的问题结束，我认为这反映了ShiftPixy的独特性。 这位投资者想知道如何对公司进行分类。 你是另一家技术或软件公司，或者你是如何真正看到自己的，也许你可以对Patrice那个人进行刺激？
Yes, it's an interesting question. I think the – I'd like to remind that the technologies are only here to support our human capital management strategy and reduce the multiple touch points specific to our target market and alleviate all the manual implication for continually staffing and training new employees. Therefore, as I think you've heard Scott mention before, at its heart ShiftPixy is a staffing enterprise, focused on both businesses and workers in the new gig economy.
是的，这是一个有趣的问题。 我想 - 我想提醒一下，这些技术只是为了支持我们的人力资本管理战略，减少我们目标市场特有的多点接触点，并减轻人员不断增加和培训新员工的所有手动含义。 因此，正如我认为您之前听过斯科特提到的那样，ShiftPixy的核心是人力资源企业，专注于新型经济中的企业和员工。
All right, terrific. So that will conclude this morning's Q&A session. Thank you both as always for providing these thoughtful answers, and I'll now hand it back over to Scott for his closing remarks.
好吧，太棒了。 所以这将结束今天上午的问答环节。 一如既往地感谢你们提供这些深思熟虑的答案，现在我将把它交回斯科特的闭幕词。
Great. I went to thank everyone for being with us this morning and as always we appreciate your interest in ShiftPixy. This is an exciting time for us and we look forward to providing additional updates as we close out our fiscal year. Thanks again for listening in today and I hope everyone has a terrific week. Speak with you soon.
非常好。 我感谢大家今天早上和我们在一起，并且一如既往地感谢您对ShiftPixy的兴趣。 对我们来说这是一个激动人心的时刻，我们期待在结束本财年时提供额外的更新。 再次感谢您今天的收听，我希望每个人都有一个非常棒的一周。 很快就和你说话。
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