ShiftPixy, Inc.
Q1 2019 Earnings Call Transcript

Published: 11 Jan 2019

[Operator:]

Greetings and welcome to the ShiftPixy Fiscal First 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.

[Vance Edelson:]

Thank you very much, 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 described 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 first quarter of 2019 ended November 30, 2018. 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 turn the call over to Chief Executive Officer, Scott Absher.

[Scott Absher:]

Good morning, everyone. Thank you for joining the call at this exciting time for ShiftPixy and I'm glad you can be with us. It's been only six weeks since we last hosted a conference call, so we'll keep our comments brief. I'll begin with a quick background on our company as for our newer investors before I share the highlights of our first quarter performance. I'll then turn it over to Patrice, who will walk us through our financial results in more detail. As always, we will close with a Q&A session. ShiftPixy is a staffing enterprise focused on both businesses and workers in the new Gig Economy. The restaurant and hospitality industries account for roughly half of the workers in the fast-growing US part-time labor market, and that's where we were led to just focus in these early days for our company. Our goal is to bring a proprietary sophisticated and compliance-oriented technology platform to the Gig Economy, aimed at helping businesses with numerous often burdensome requirements, such as those related to workers’ compensation, paid time off accruals, payroll taxes, benefit plans, unemployment taxes, and claims, and more. ShiftPixy is assuming a significant part of the employer status and the relationship to the workers, and managing the compliance aspects as well. We’re also endeavoring to enable workers to secure additional shifts. As a result of this approach, our clients can gain ready access to a flexible employee base if the confidence and compliance requirements are satisfied. Meanwhile, the workers on our platform or shifters as we call them, can gain a flexibility to easily move amongst a broad array of shifts at our clients. A great example of how our platform is increasingly relevant is the rapid emergence of the convenience economy, especially when it comes to Quick Service Restaurants known as QSRs. While they’re generating new income under third-party delivery partnerships, they are also unfortunately surrendering their brand, their customer experience, their reputation and even their customer data to third-party providers. ShiftPixy is secure to these issues offering them an extension of their own platform, so that they can professionally self-deliver with an overall better brand-centric customer experience. We encourage you to learn more about our story by visiting our website. Now with this as a quick background, let's have a look at our fiscal first quarter results. ShiftPixy generated gross billings of $70.9 million, that's up 77% compared to the corresponding quarter a year earlier. The rapid growth is a result of the expanding number of worksite employees on our platform, which averaged approximately 9,280 in the most recent November quarter, as compared to 5,682 in the year earlier period. With that, Patrice will now walk us through the quarterly results in more detail before we go to Q&A. Patrice?

[Patrice Launay:]

Thank you, Scott. It’s nice to speak with everyone again today and thank you for joining the call. As Scott just mentioned, our gross billings for the quarter were $70.9 million representing a 77% annual increase, and a 3.4% sequential decrease. Not surprisingly, the annual gross was roughly in line with the increase in average worksite employees which reached approximately 9,280 in the fiscal first quarter of 2019, up a very solid 63% over the past year. The slight sequential decline in gross billing is primarily due to improved revenue cut-off procedures. Specifically, at the end of the calendar year, we look to weigh out marginal clients from our base. Another factor was what we view as normal client behavior around year-end. Specifically, our clients tend to wait until the beginning of each calendar year to onboard workers due to higher workers’ compensation and employment tax function and the related book keeping requirements. Our gross profit nearly tripled during the quarter to $3.4 million as compared to $1.2 million in the corresponding prior year period and our gross margin was 32.2%, representing an increase of 13 basis points related to the same quarter last year. While we’re only about half way through our fiscal second quarter of 2019, early indications are that the strong performance has continued with the 25 new clients already brought on-board since the end of November. These new clients have added approximately 3,300 new worksite employees generating about $86 million in additional annual gross billings. I would also like to comment on our convertible debt activity which is an ongoing source of funding for us. As of November quarter end, we have converted approximately $1.6 million of principal and $87,000 of interest into shares of common stock and issued approximately 665,000 shares of common stock. This concludes our prepared remarks for today. So we can now move on into our Q&A session. We have asked members of the investment community to email us their questions which Vance will now walk us through. Vance?

[Vance Edelson:]

Alright. Thank you, Patrice. And again, given that it's only been about six weeks since our last conference call, we can keep the 0Q0&A relatively brief. I have organized the questions into two groups, those for Scott and then those for Patrice. And I’ve figured, first Scott will start out with some operational type questions. So here's the first, is scheduling functionality in beta-test yet?

[Scott Absher:]

Yes, Vance, we have not released the scheduling functionality. It is being completed and going through final development, and we hope to see it live in a while of this calendar quarter.

[Vance Edelson:]

Okay, great. Next question. Has the driver insurance program launched yet or is that in beta testing?

[Scott Absher:]

We’ve not released the driver management functionality but it is complete. And provided that we secure additional funding to enable us to corporate the functionality into our platform, we expect our first users to see it live through this calendar quarter.

[Vance Edelson:]

Okay, got it. And moving on, here is the next question. Have there been any recent large contract wins? And can you provide the names of any new large customers?

[Scott Absher:]

Well, we don’t offer names of the clients because many of our clients prefer that we don’t disclose their business activities for competitive reasons. But we can tell you that in the QSR sector, we are serving operators under brands such as Denny's, Papa John's, Domino's, El Pollo Loco and Taco Bell. And we expect our penetrations into those brands to improve rapidly. Over the next year, we expect to discuss our adoption into most of the major QSR brands.

[Vance Edelson:]

Okay, great. And here is the next question on the geographic expansion. Are the San Francisco and Miami offices open yet?

[Scott Absher:]

We expect to open Miami in January, in other words, this month. And we've not made a decision on San Francisco.

[Vance Edelson:]

Okay, sounds good. Next question we received, what are your operational goals for the 2019 calendar year?

[Scott Absher:]

That's a great question, Vance. Our 2019 push is in three major areas. Number one, rolling out our high value user features. Number two, getting the business to breakeven. And then number three, to have at least 50,000 lives on the platform by December.

[Vance Edelson:]

Alright, perfect. Thanks for those answers, Scott. And then let's move on to the questions directed more at Patrice. First one is, please provide an update on liquidity and what steps will be taken to raise additional funding?

[Patrice Launay:]

Good question, Vance. The company used a $1.3 million in operations which is outside of software development in the first fiscal quarter, which approximates in a personal cash burn of $400,000 per month. We do expect to generate additional cash flow from the growth of our base of clients and worksite employees. The company is beginning to onboard the larger clients and franchises of national brands, producing significant increase in the number of our worksite employees, as businesses view our value proposition as useful for their own success. We do not expect to significantly invest in the human capital to meet the expected growth of our business. I would add that many prospective clients, as we expected, delayed on-boarding with us until the start of the new calendar year. The increase in client with the attainable increase in administrative fees, we believe will enable us to significantly reduce our cash burn and meet our target of breakeven this fiscal year. Our plans and expectations include raising capital to fund our growth, including the final development of our important user features. A few months ago, we engaged with a well-known investment bank to take us to the capital market, and we expect to be able to disclose more about their work in the coming weeks.

[Vance Edelson:]

Okay. Thanks for all the detail there, Patrice. And the next question for you is related, how much can the remaining warrants bring in?

[Patrice Launay:]

Right, the company has put up approximately [Technical Difficulty] outstanding warrants. Of which $2.2 million has an expiration date of March 1, 2019 with exercised prices ranging from $2 to $4. So this $2.2 million warrants can provide if exercised approximately $4.9 million in cash.

[Vance Edelson:]

Okay, understood. Next question. Over the past year, gross revenue has grown substantially but net profit or the bottom-line remains weak. So, this individual wants to know, when can we expect improved profitability?

[Patrice Launay:]

The company intentionally invested early in fixed operational cost items as a means to enable us to meet the growth of our business with proportionate increase in future additional spending. As previously mentioned, we are now beginning to onboard larger clients with a significant increase in the number of worksite employees. We believe that the economies of scale that we are beginning to enjoy would help us attain profitability before the end of our current fiscal year.

[Vance Edelson:]

Okay, great. So that will conclude this morning's Q&A session. Thank you all for fielding these questions and I'll turn it back over to Scott for closing remarks.

[Scott Absher:]

Thanks, Vance. Great. Thank you once again everyone for joining us today. We greatly appreciate your interest in ShiftPixy. We'll be presenting this coming Monday at the ICR Conference which will be webcasted approximately 2

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone, have a wonderful day.