Delaware (STATE OR OTHER JURISDICTION OF INCORPORATION) |
000-28275 (COMMISSION FILE NUMBER) |
75-2837058 (IRS EMPLOYER IDENTIFICATION NO.) |
Exhibit No. | Description | |
99.1
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Conference Call Transcript Issued August 14, 2008 |
PFSweb, Inc. |
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Dated: August 15, 2008 | By: | /s/ Thomas J. Madden | ||
Thomas J. Madden | ||||
Executive Vice President, Chief Financial and Accounting Officer |
PFSweb, Inc. | PFSW | Q2 2008 Earnings Call | Aug. 14, 2008 | ||||||||
Company 5 | Ticker 5 | Event Type 5 | Date 5 | ||||||||
MANAGEMENT DISCUSSION SECTION |
Operator: Good morning. My name is Pam and I will be your conference operator today. At this time I would like to welcome everyone to the PFSweb Second Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to our host, Todd Fromer, Managing Partner of KCSA. Sir, you may begin your conference. |
Thank you, Pam. Before turning the call over to management Id like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intend, will, guidance, target, confident, and other similar expressions typically are used to identify forward-looking statements. | ||
These forward-looking statements are not guarantees of future performance and involve and are subject to risks, uncertainties, and other factors that may affect PFSwebs business, financial condition and operating results, which include but are not limited to the risk factors and other qualifications contained in PFSwebs annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed by PFSweb with the SEC to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. PFSweb expressly disclaims any intent or obligation to update these forward-looking statements. | ||
During todays call well also present certain non-GAAP financial measures, EBITDA, adjusted EBITDA, non-GAAP net income, merchandise sales, and certain ratios that use these measures. In our press release with financial tables issued this morning, which is located on our website at pfsweb.com, youll find our definitions of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP measures and a discussion about why we think these non-GAAP measures are relevant. These financial measures are included for the benefit of the investors on the call and should be considered in addition to and not instead of GAAP measures. At this time it is now my pleasure to turn the floor over to Mr. Mark Layton, Chairman and CEO of PFSweb. Mark, the floor is yours. |
Thank you, Todd. Good morning, everyone. Id like to welcome you to our second quarter 2008 conference call. With me today, as usual, Tom Madden, our Chief Financial Officer; and Mike Willoughby, President of our services business. | ||
This morning well provide you with an overview of our financial performance and some color on the events that highlight our momentum as weve sustained through the first half of 2008. Once were done with our prepared comments, Tom, Mike and I will be available to answer a few questions for you. | ||
For the June quarter, we reported our fifth consecutive quarter of consolidated net income, which was driven by measurable growth in our combined services business segments. Were also pleased to report adjusted EBITDA of $2.5 million and a non-GAAP net income of $0.4 million in the second quarter. We are particularly pleased with these results as they come at a difficult time for the economy and consumer spending. As Mike will address in a few minutes, our services business withstood these economic forces nicely so far this year. | ||
In addition to the progress sustained in our services business, allow me to briefly mention some of the other key points in our business that well highlight throughout the call. On the eCOST.com |
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front, the top-line results this quarter were impacted by a slowdown in sales in our business-to-business segment as well as continued focus on various margin enhancement programs that were designed to improve the overall financial performance and health of the eCOST business. |
Further, our broadening of product line and expansion into the For The Home and Sports and Leisure products in the early part of the second quarter helped to provide higher margin product mix that aided margin growth this past quarter. | ||
Also in the second quarter of 2008 weve reported merchandise sales of $631 million; that compares to about $649 million in the second quarter of 2007. We utilized merchandise sales as defined as a metric that we believe properly communicates the scale of our business. Our financial results reflect the continued success of our business model to drive greater leverage and scale through our technology and operational infrastructure while maintaining our sharp focus on quality and operational cost control. | ||
With the stability in our business so far this year we believe the company is on track to achieve the financial targets that we set out for 2008 at the beginning of the year. This includes total consolidated revenues, excluding pass-through revenues, of approximately $445 million to $475 million and a consolidated adjusted EBITDA of $10 to $12 million for the year. We are targeting a non-GAAP net income, which excludes the impact of stock-based compensation and the amortization of identifiable intangible assets to be approximately $1 to $3 million for 2008. However, any further weakening in the U.S. economy may cause us to fall towards the lower end of the targeted range. | ||
With this information as a quick backdrop, Id like now to turn the call over to Mike, who will offer you some details on our services business and their results for the June quarter. Mike? |
Thanks, Mark and good morning. Before beginning my prepared comments Id like to remind you that when I refer to our services business segment Im including both our Supplies Distributors and PFS service fee business since both of these businesses have essentially the same operating business model with different financial models. | ||
As Mark indicated, were pleased with our results for the quarter for our services business, which included a 20% increase in revenue for the service fee segment. Our top-line growth is mainly due to the implementation of new client agreements, temporary increased activity from one of our largest service fee client and increased project activity. During the quarter, revenue included several new clients that were not fully active this time last year, including Tractor Supply and an undisclosed Fortune 100 big box retailer. | ||
During this quarter, we were awarded four new deals with leading well-known brands in the consumer goods space, and we finalized contracts for two of these four deals. First, we signed a new deal with Luxottica Group, which is a global leader in the design, manufacturing and distribution of premium fashion and luxury eyewear, to create and support a new e-commerce solution for Sunglass Hut. Sunglass Hut is a recognized leader in specialty sun retailing offering consumers the latest branded products along with outstanding customer service. Our solution for Sunglass Hut includes custom order management and order fulfillment solutions that will be supported from Memphis and the high-touch customer care solution that will be supported from our Plano, Texas, headquarters. We expect this solution to be implemented by the end of 2008. | ||
Second, we signed an agreement with Sephora. Sephora is a division of Moët Hennessy Louis Vuitton, the worlds leading luxury products group, to provide a customer contact solution that will be supported from our Plano facility. Sephora features over 250 classic and emerging brands |
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across a broad range of product categories. These product categories include skin care, fragrance, makeup, and hair care. In addition to these 250 brands, they also have their own private label merchandise. Sephora operates about 515 stores in 14 countries worldwide with an expanding base of over 126 stores across North America. We believe that similar to other client agreements that we have, this agreement has potential for expansion through offering additional services in the future. |
In addition to these new client contracts, let me discuss the implementation of contracts that we had previously announced. During the quarter we launched our program for Discoverystore.com and the Discovery Channel store catalog. Under this agreement, we provide technology, customer care and fulfillment, as well as support for front-end product planning and procurement. And this program is now in full operation. | ||
Furthermore, in August, we launched a new end-to-end platform for Roots.com that utilizes the front-end store technology at Demandware. As previously announced, Roots.com has moved to the Demandware platform to increase e-commerce functionality and improve customer retention. This new site combines the world-class services of PFSweb for contact center management, warehouse logistics and fulfillment with the Demandware technology to provide a single, flexible, best-of-breed solution that spans the e-commerce storefront, delivery of goods and ongoing customer care. We believe this site will prove to be a testimonial to the success of our end-to-end product offering as we evolve that in the marketplace. | ||
The launch of the new Roots.com site represents a significant milestone for our company as it represents our first end-to-end e-commerce client leveraging our partnership with Demandware. The new site features integration with several interactive marketing partners including Sitebrand and Coremetrics. The Canadian and U.S. online storefronts also feature user experience designed by our partner Fluid, theyre an award winning interactive agency team that weve partnered with. And soon we will offer hosted social commerce capabilities from Bazaarvoice including product ratings and reviews. | ||
Weve carefully architected our end-to-end e-commerce solution to address the specific needs of our clients and their customers. And were very excited to see such synergy and close collaboration between our various partners as we create the site. All these partners are market leaders, which comprise and bolster our solutions and create, in my opinion, a best-of-breed offering. | ||
Moving forward, we believe there are several factors already built into our business that can drive future growth for our end-to-end e-commerce solution. As traditional retailers struggle in a declining economic environment, were seeing a greater number of new business opportunities from companies that want to build an online presence and tap into new markets. | ||
Forrester Research expects Internet sales to surpass $200 billion this year, which is up from $175 billion in 2007. And the New York Times wrote an article a few weeks ago that suggests retailers are investing in online operations and experimenting with new market techniques. Even retailers that are scaling back their physical store presence have stated that theyre looking to expand or enhance their online operations. | ||
Our end-to-end e-commerce solution has already received a very positive response from within the industry, from existing clients and from potential new clients as well. Our new offering supports retailers and branded consumer good manufacturers with a total outsourcing solution thats customized to their particular e-commerce strategy. And we are able to do this without losing the site or brand control thats been associated with earlier, proprietary end-to-end outsourcing solutions. We believe this new offering makes a significant difference in our ability to compete for and win new clients. |
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PFSweb, Inc. | PFSW | Q2 2008 Earnings Call | Aug. 14, 2008 | ||||||||
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In addition to the favorable industry trend and positive buzz we have around our end-to-end offering at this time, we continue to benefit from very positive working relationships with the other major e-commerce technology providers, such as IBM Websphere, ATG, Market Live, as well as, of course, Demandware. We share existing client relationships with each of these software providers and because of our existing world-class integration with each technology platform. It also is a result of our excellent reputation as a direct-to-consumer service provider, were frequently invited to jointly propose on new business with each of these partners. | ||
Our pipeline opinion proposals remains in line with our expectations for this time of year. And currently our prospective new business pipeline is valued in excess of $35 million based on client-projected volumes. This total includes the two new deals weve been awarded and for which we are actively finalizing contract terms. We are targeting our lead activity to strengthen in the early fall and our total sales pipeline size to increase. | ||
As we leverage the good news coming from our Roots.com watch as well as a strong presence that we anticipate at several industry events this fall, including the Las Vegas shop.org event. As discussed in previous calls, our global solution can beat many international companies desire to reach new customers and new countries via the Internet. They can do this without losing control of their brands and minimizing the risk of entering these new markets leveraging our platform. | ||
While weve served the international markets for many years, weve recently started to experience even greater demand from companies in North America and Europe looking to reach outside their current geographic market and into markets that historically had less demand. By utilizing e-commerce these companies can tap into these smaller economic, smaller markets economically, and by leveraging the online channel, domestic companies can potentially look to get through some of these economic times by investing in the online channel both here domestically as well as globally. | ||
And now for some highlights from our eCOST business, Ill turn the floor back over to Mark. |
Okay, good morning again. Thanks, Mike. Turning now to the eCOST.com business, we continue to confident that 2008, despite the impact of slowing economy, will show revenue growth for the year as well as improve gross margins and control costs as a result of our improving operating structure in this business. During the second quarter we saw improved year-over-year gross profit percentage that included freight, which was driven by the shift of our overall product mix since the overall, since the introduction of new higher margin product categories and the impact of a number of new vendor sources that drove a very attractive deal opportunities this past quarter. | ||
To the first half of 2008 were making good progress on the continued and ongoing redevelopment of the eCOST.com website. Revenue for the quarter was down year-on-year due to a couple of factors. | ||
First, the business was impacted by macro consumer spending patterns, brought on by the overall economic conditions that we are experiencing here in the U.S. This particularly resulted in our small, or impacted us in our small to medium, or what we call our B2B sales area, which was down quite a bit from last year. Our B2C area, to where we sell to specific individual consumers, came in relatively flat year-on-year. And we believe sales were also impacted by our heightened focus on various margin expansion programs that ultimately are designed to improve the overall financial health of the business. | ||
Notwithstanding the softness in revenue this quarter, we do anticipate growth in the direct-to-consumer side of the business as we move forward this year. Sighting some industry sources, |
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PFSweb, Inc. | PFSW | Q2 2008 Earnings Call | Aug. 14, 2008 | ||||||||
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specifically, comScore Media Matrix, the number of shoppers visiting websites that offer discounts increased 21% from June 2007 to June 2008, and we think this type of information and data relates specifically to deal sites like eCOST.com. |
Now, while revenue was down year-on-year, youll see that our financial results actually came in generally flat as we compare the second quarter of 08 to the second quarter of 07. This was a result, as I mentioned, on our various margin programs that we have in place that have been real successful this quarter. | ||
As we prepare for the holiday season at eCOST, were working feverishly to expand our product offering and to bring on another 20 to 40,000 new products to the site. We believe these additional new products will also help with our market expansion programs as we bring in a mix of higher margin types of products, and also in the broadening of our categories to allow us to reach into other demographic areas as we work to become a more general product site. | ||
We have four new VW relationships that are currently in various integration and testing phases that will provide the pipeline for these new 20 to 40,000 products. Were also hopeful to unveil a significant set of enhancements to our bargain countdown deal section of the eCOST.com store sometime in the next couple of months. We believe these enhancements will provide us a greater ability to showcase our great pipeline of daily deals in a manner that better highlights the limited quantity and limited time nature of these offerings. Product deals are cornerstone to our growth and to the effectiveness of our viral and e-mail marketing programs and we believe these new enhancements to bargain countdown will help to accelerate our success with these marketing programs. | ||
Let me provide you just a few specifics on the operating metrics for eCOST this quarter. We have ended in June 30 about 1.8 million total customers on our file at this point. That compares to about 1.7 million as we compare it to the same quarter in the prior year period. New customers for the second quarter of 2008 total 29,400, that was versus 25,400 new customers a year ago. For the three months ended June 30, 2008, eCOST reported a total of 61,900 orders shipped, with an average order value of about $365. This compared to about 64,000 orders shipped in the second quarter of 07 with an average order value of about $420. | ||
Ad expenses for the second quarter were about $170,000; this compares to about $303,000 for the second quarter of 2007. The decrease in ad spend is consistent with our continued focus on more efficient viral marketing efforts and our focus on controlling customer acquisition costs. This quarter our estimated cost to acquire a new customer was $5.69, this excludes our catalog costs, which is directed to existing customers, and that compares to $9.76 for the second quarter of 2007. So a pretty dramatic decline in our cost to acquire new customers, yet we were up pretty significantly in the number of new customers that we acquire. | ||
We believe this is directly attributable to the viral and e-mail marketing programs that we believe are gaining some good traction for us. Keeping this customer acquisition cost low is critical to the overall profitability of this business as we move into the future. Just some notes there, the estimated cost to acquire a new customer is calculated by taking our total ad expense during a quarter and dividing it by the total number of new customers during that same period. | ||
Moving forward, we still believe eCOST can achieve cash flow break-even of a run rate of about 10 million in revenue at approximately 10 points gross margin. Again, were operating a bit below those levels at this point but we still believe that this is achievable goal for us as we look to the future. Were continuing to make improvements in the shopping experience for our customers as Ive described. Also we are continuing to work to broaden our selection of merchandise in order to attract a broader range of demographics and a higher mix of products through the use of a number of virtual warehouse agreements. |
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PFSweb, Inc. | PFSW | Q2 2008 Earnings Call | Aug. 14, 2008 | ||||||||
Company 5 | Ticker 5 | Event Type 5 | Date 5 | ||||||||
Thats an overview of the eCOST business for the quarter so far this year. Let me now turn the floor over to Tom. Well take you through some details on the consolidated financial picture. Tom? |
Thank you, Mark. Let me first start by providing a brief overview of our consolidated operating results for the quarter ended June 30, 2008, and then Ill provide some select operating highlights for certain business segments, as well as an overview of key balance sheet items. | ||
As reported in our press release, our consolidated revenues for PFSweb for the quarter ended June 30, 2008, were $110.7 million compared to $108.4 million reported for the second quarter for 2007. Gross profit for the second quarter of 2008 was $12.8 million or 12% of net revenues excluding past due revenues as compared to $11.9 million or 11% of net revenues excluding past due revenues in the second quarter of 2007. The increased consolidated gross profit is primarily attributable to the improved performance in our Services business segment. | ||
As we have discussed previously, we utilized adjusted EBITDA as a key metric in evaluating our operational performance. In the second quarter, our consolidated adjusted EBITDA was $2.5 million versus $3.4 million in the prior year period. | ||
For the second quarter, net income was $62,000 or $0.01 per basic and diluted share as compared to net income of $154,000 or $0.02 per basic and diluted share for the same period last year. | ||
Another key metric we use in evaluating our operation performance is what we refer to as non-GAAP net income. To calculate this we exclude from net income the impact of stock-base compensation and amortization of identifiable and tangible assets. For the second quarter, non-GAAP net income was $0.4 million or $0.04 per basic and diluted share, as compared to non-GAAP net income of $0.5 million or $0.06 per basic and diluted share. Im sorry, $0.06 for basic share and $0.05 for diluted share for the same period of last year. | ||
We are pleased with our results for this June quarter, especially with it being our fifth consecutive quarter of consolidated net income performance. | ||
Now turning to the performance of select business segments for the quarter ended June 30, 2008. First, Service Fee revenue increased 20% to $21.3 million from $17.6 million in the prior year quarter. This increase is primarily due to incremental revenue attributable to the ramp up of custom solutions for new clients such as Discovery, Riverbed, and others within the past 18 months. We also benefited from increased project activity and a modified contract arrangement with one of our largest Service Fee clients. | ||
These components of our top line growth also contributed to an improved gross margin performance in the Service Fee business in the June 2008 quarter. SG&A increased somewhat in the June quarter versus the prior year; primarily due to increased personnel costs and prior year results benefiting from a favorable impact on exchange rates on certain inter-company accounts. | ||
For our Supplies Distributors business segment, revenue was $60 million in the June 2008 quarter compared to $57.6 million for the prior year period. Gross margin for the Supplies Distributors business was relatively flat at approximately 8% as compared to the second quarter of 2007. Gross margins for the quarters ended June 30, 2008 and 2007 were slightly above our normal range due to the impact of certain incremental inventory cost reductions that occurred. | ||
As for eCOST.com, in the second quarter of 2008 eCOST.com revenue was $23.0 million compared to $27.1 million last year. As Mark indicated earlier, eCOST.coms adjusted EBITDA was relatively flat on a quarter-over-quarter basis, with a $0.6 million loss. |
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On a consolidated basis from a balance sheet perspective, our debt balances declined this quarter from the March 2008 results, primarily due as well as from the December 31 results, primarily due to principal payments made under our term debt arrangements, as well as reductions in borrowings under our Service Fee business asset-based lending facility. This latter reduction was partially due to a temporary cash flow benefit from our modified contract structure. | ||
As far as other working capital components, our accounts receivable DSL performance, inventory turnover and accounts payable date-to-paid remain healthy throughout our businesses. | ||
Before turning the call back over to Mark, let me just remind everybody of the completion of our one for 4.7 reverse stock split of the companys outstanding common stock, which we announced on last quarters call. As of June 2, 2008, the total number of shares outstanding was reduced to approximately 9.9 million shares from approximately 46.7 million shares of common stock outstanding at the end of the previous date. As a result of this split, and the reduction in the shares outstanding, the share and per share amounts for both this years results, as well as last years results, have been adjusted. | ||
Now Id like to turn the call back over to Mark for closing remarks. |
Thanks, Tom. Just adding on to the reverse split there, obviously one of the primary objectives in this was related to distancing ourselves from issues with the NASDAQ. We also could gain full re-compliance with the NASDAQ listing requirements this quarter so I think the split objective at least worked for us from that standpoint. | ||
Appreciate the prepared comments this morning. Just to recap things, Im pleased with our overall performance and results across each of the businesses for the quarter, particularly considering the economic climate is a bit soft out there. Our results for the quarter reflect continued solid execution in our service fee business as we continue to work to develop world-class or best-in-class solutions and a solid base that we have put our eCOST business on as we look to the future to continue to grow that business and to drive profitability from it. | ||
In the face of a difficult retail environment in 2008 we believe our performance will be driven by existing strong client strong client inside our customer base as well as the new clients that weve signed and fully implemented over the last 12 months. With that backdrop and information there, that concludes our prepared comments for today. Operator, well be available now for a few questions, if you could queue those for us, please. |
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PFSweb, Inc. | PFSW | Q2 2008 Earnings Call | Aug. 14, 2008 | ||||||||
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QUESTION AND ANSWER SECTION |
Operator: Thank you. [Operator Instructions] Thank you. Your first question is coming from George Walsh of Gilford Securities. |
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Thanks. We appreciate everybodys time this morning. And well talk to you again next quarter. Have a great day. | ||
Operator: Thank you, and this concludes today PFSweb Second Quarter Earnings Conference Call. You may disconnect your lines. |
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