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Results: Is Pushpay a must-buy ASX tech share?

The Pushpay Holdings Ltd (ASX: PPH) share price will be on watch this morning after the payments company released its full year results.

Across the Tasman the company’s New Zealand-listed shares are currently trading 1.5% lower at the time of writing.

How did Pushpay perform in FY 2019?

In FY 2019 Pushpay delivered a 40% increase in revenue to US$98.4 million. This was in line with its guidance and driven by the targeted implementation of its strategy, growing team capabilities and expertise, and responsible investment into product design and development.

Pleasingly, management is confident of further strong growth in FY 2020 and has provided operating revenue guidance of between US$122.5 million and US$125.5 million. This represents year on year operating revenue growth of between 28% and 31%. This is expected to be driven by the execution of its strategy, increased efficiencies, and further market share gains in the US faith sector.

Another positive in FY 2019 was the company’s gross margin improvement from 55% to 60%. Management expects to benefit further from its margin improvement program over the coming year and is targeting a gross margin of 63% in FY 2020.

But perhaps the single biggest positive in FY 2019 was its operating leverage. Total operating expenses remained stable during the 12 months, leading to total operating expenses as a percentage of operating revenue falling from 93% to 65%. More of the same is expected in FY 2020, with management aiming for significant operating leverage to accrue as operating revenue continues to increase and growth in total operating expenses remains low.

This ultimately led to EBITDAF increasing 108% in FY 2019 from a net loss of US$18.6 million to a gain of US$1.6 million. In FY 2020 management expects the combination of strong revenue growth and improved operating leverage to lead to a material increase in EBITDAF to between US$17.5 million and US$19.5 million.

However, the company won’t be doing this with CEO Chris Heaslip at the helm. Taking a bit of the gloss off the result, this morning the company advised that Mr Heaslip has resigned, effective May 31 2019.

The company has appointed Bruce Gordon, who was previously Chairman of the Board, as Pushpay’s incoming CEO and executive director, with effect from June 1 2019.

Should you invest?

I think Pushpay is a quality company and a great option for growth investors.

The resignation of its CEO is disappointing and is likely to weigh on its shares today, but when the dust settles I think it would be well worth considering a long term investment in its shares along with fellow tech stars Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO).

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia owns shares of Altium and Xero. The Motley Fool Australia has recommended PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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