Pushpay chief executive Molly Matthews. Photo / File
Pushpay has reported annual operating earnings of US$62.4 million for the year to March 31 - in line with tightened guidance - but forecast lower underlying earnings of US$56m to US$61m for FY2023.
Shares were down 2.26 per cent to $1.30 in early trading as the NZX50 rose 0.17 per cent.
Jarden analyst Guy Hooper said the result was broadly in line with expectations.
Pushpay's guidance was below the analyst consensus. "While this appears negative at first read, the key difference appears to be the level of investment spend rather than underlying operations," Hooper said.
"The company also provided medium-term outlook commentary and FY24 targets, which appear upbeat and ahead of Jarden's estimate," Hooper added. Pushpay said today it will boost customer numbers by more than 25 per cent to 20,000 by 2025.
The Kiwi-American company also said it plans a restructure to shift its intellectual property from its New Zealand subsidiary to its US subsidiary - although it has some IRD hurdles to jump through first.
"Over the past few years, with over 98 per cent of the group's operating revenues coming from the US, there has been a progressive shift in the location of the group's management and support functions from New Zealand to the US," the company said.
The shift in focus toward the US had required Pushpay to review its transfer pricing, the firm said. Transfer pricing - or which country costs are booked in - affects tax and has been a hot topic between Inland Revenue and tech firms that operate in more than one country.
There will be a non-cash transaction between Pushpay's NZ and US operations to seal the deal. There will be "no impact on the employment or impact of staff".
Pushpay has 564 staff, with around two-thirds in the US and the balance in NZ.
It added: "Pushpay has proactively engaged with the New Zealand Inland Revenue via the lodgement of an application for a binding ruling on key aspects of the transaction and remains committed to meeting its tax obligations in all jurisdictions. Subject to final bank approval, it is expected that the transaction will be effected within the next few months."
Pushpay CEO Molly Matthews told the Herald the restructure was not the result of an IRD challenge, and that it was not a pre-cursor to delisting from the NZX.
The maker of donation and church management software was founded in Auckland a decade ago by Chris Heaslip and Eliot Crowther, but now most of its staff - and its new CEO, Molly Matthews - are in Oregon and Colorado.
Revenue for FY2022 increased by 13 per cent to US$202.8m, while net profit increased from the year-ago US$31.2m to US$33.2m.
Customer numbers increased 31 per cent to 14,508 for the full-year (from the year-ago 11,099), driven primarily by the acquisition of streaming platform Resi Media. Overall customer growth was lower in the second half, with net additions of 413, though better than the first half in terms of organic growth.
Excluding the Resi Media acquisition, Pushpay added a net 551 customers, which Matthews said was short of internal targets in a softer than anticipated market.
The guidance for lower operating earnings in FY2023 was pinned on investments for growth. The company, which has its base in large Protestant congregations, wants to expand into the Catholic market, where it sees an addressable market of US$600m to US$700m (or a quarter of faith giving in the US) but faces incumbents.
Pushpay has previously put the totally addressable Catholic market at US$330m. Today's doubled figure followed an analysis by an un-named multinational consultancy, interim CFO Richard Keys told a conference call.
Matthews said Covid began as a tailwind as congregations moved online, increasing uptake of digital solutions, but had more recently become a headwind, in part because of consolidation among some smaller churches.
Matthews also cited an "increasingly competitive labour market leading to wage and salary pressures" as a factor in the software guidance for FY2021. The CEO said a "reset" had increased remuneration for key staff.
Matthews said on a conference call that Pushpay would overcome these headwinds, in part, by aiming to win 25 per cent of Catholic parishes over the next five years.
The CEO said 173 parishes had been signed up from a standing start a year ago.
Last month, Pushpay confirmed it had fielded "multiple" takeover offers and had appointed Goldman Sachs to assess them.
There was no immediate update on the sales process today, although the transfer of intellectual property to Pushpay's American operation could be seen as clearing the way for a sale to a US buyer.
Pushpay shares closed at $1.33 on Tuesday. The stock has spiked since April 27, when it had fielded "multiple" takeover offers and had appointed Goldman Sachs to assess them.
Despite the jump, shares were still well off their pandemic high of $2.35 in 2020 (for a $2.35b market cap) as lockdowns sent congregations online, fuelling demand for the Auckland-founded, NZX-listed company's software in its core US market.
Jarden analyst Guy Hooper said in an April 20 note that a Pushpay sale could be at a premium of around $500 million on Pushpay's current share price.
Hooper noted that although data was scarce in the sector, recent transactions - including a November deal in which New York-based investment firm Reverence Capital Partners took a majority investment in church management software provider Ministry Brands - had occurred at an average multiple of 6.2x sales, implying that Pushpay could be valued at up to $2b in a takeover - or roughly a half-billion premium on its current market cap.
Pushpay shares were at $1.28 - that is, close to Tuesday's close, when he made his comments.
Even if no deal goes ahead, Jarden anticipates Pushpay success in the Catholic market, and forecasts that will add 60 cents per share in value.
RBC Capital Markets - which has a $1.75 target - said in a note to clients overnight that "We believe both strategic and private equity would find Pushpay attractive given: 1) strong market position 2) positive free cash flow 3) profitability 4) high returns i.e. +25 per cent return on equity/return on invested capital 5) materially higher consensus growth versus trading multiples and trading at materially depressed multiples versus historical average.''
In a February research note, Clare Capital noted that while Pushpay had smaller trailing 12-month revenue than Blackbaud ($270m to $1.4b), the Kiwi-founded company had a much higher ebitda margin (31 per cent to Blackbaud's 12 per cent) and much lower debt.
Pushpay declined questions. Director Lovina McMurchy said, "As a public company, we cannot provide any additional information than what we have disclosed publicly. The Pushpay board is committed to acting in the best interest of, and maximising value for, Pushpay shareholders."
If a buyout does go ahead, it will be a reversal for a company that's previously been the acquirer.
On today's conference call, Matthews declined to answer questions about whether Pushpay had set up an independent committee to review offers, or if it was preparing for due diligence.
She added, "There's no certainty that these unsolicited approaches will result in a transaction."
Pushpay, which has a small office in Auckland but most of its staff in the US, has bought a series of US companies including Colorado-based Church Community builder for US$87.5m in 2019 and Texas-based Resi Media, which offered a streaming platform for church services, for US$150m late last year.
Pushpay was founded in Auckland in 2011 by Crowther (who left in 2018) and Heaslip (who departed the following year). The pair initially struggled until they received an anchor investment from the Huljich family, which sold its stake to US private equity interests over two block trades in 2020 (when it offloaded stock worth $124m) and 2021 ($320m). Crowther and Heaslip sold their holdings as they exited the company.
Today, a clutch of US private equity firms are the largest shareholders in Pushpay, but there are a number of New Zealand parties with small holdings including ACC's investment arm (3.5 per cent), Harbour Asset Management (2.9 per cent), Fisher Funds (1.3 per cent) and Mint Asset Management (1.2 per cent).
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