MAY 14, 2012 / 03:00PM GMT, PFSW - Q1 2012 PFSweb, Inc. Earnings Conference Call
Mark Layton - PFSweb, Inc. - Chairman, CEO
This is Mark. Mark, I guess there is a couple of questions that you deal in there. First of all, obviously we don’t comment on
individual client profitability or growth, so I’ll steer a little bit out of that in there. But you can suffice it to say that particular area is at the upper end of the range, and as a result it is still meaningful business for us. It’s a
client that — I mean really the foundation of it was our first large services client that we did — that we landed back in 1995. It’s an important relationship for us. I don’t think that it’s a fait accompli that this
business. It’s just simply going to dwindle away to nothing. They are certainly in a reorganization mode and focusing.
The fact that
Ricoh Corporate is now the parent of the largest customer at this particular segment in there opens up other doors of opportunity for us with them as we continue to become familiar with a new group of people on their executive management side in
there, so I think it’s a client that, for our B2B business, could be a potential upside for us down the road. Obviously, no way to know with that, but, again, it’s important that we are clear that people understand the financial metrics in
the way that you just described it where it’s just important to focus on that particular segment of our business as service fee equivalent.
I can make a top 10 list of things I don’t like about GAAP reporting activity out there, but this is one of the things that is a bit confusing in terms of the way we have to recognize product revenue
as a result of the way that business is financially structured. But, again, I want to reiterate it’s an important piece of our business and I think the financial metric everybody should focus on is that gross margin and as we call it, service
fee equivalent when you combine it with the service fee side.
Mark Argento - Craig-Hallum Capital Group - Analyst
Any chance of recasting that relationship so you’re not having to book the gross revenue to skew the numbers? Because I think,
clearly, like I said, you guys are growing the service fee business so rapidly, I don’t understand the multiple that the Street is giving you guys. I guess you’re not in the business of commenting on valuations, but when I’m looking
at this business, I’m wondering if that’s one of the items here. It’s not — doesn’t screen well. People don’t understand what the real dynamic is there. So any chance of — is there the opportunity to recast that
business in terms of the buy/sell part of the equation there?
Mark Layton - PFSweb, Inc. - Chairman, CEO
There’s no discussion in that mode at this time. So part of our — the way we competitively differentiate ourselves, Mark, is
through the flexibility that we provide to our clients. This is a model that this client has chosen to work under, and we do see other clients who have utilized this type of model as well, particularly in Europe where the licensing aspects in each
of the countries are difficult to obtain and so we provide to them a structure that allows them to sell in each of the countries. So anyways, right now, I don’t see a change on the horizon, but we’d be open to that if the client wanted to
pursue that. It might change in the future, but I understand your point. We just need to focus on the service fee equivalent.
Mark Argento - Craig-Hallum Capital Group - Analyst
Sure. Fair enough. Shifting gears, on the cost side of the equation. Tom, can you better — so that the SG&A that you guys book, some of that’s clearly corporate overhead, and then the other
piece of that — is that non-allocated expenses for client contracts that are just getting underway that haven’t generated revenue yet so you don’t have the corresponding cost of goods there? If you could help me better understand the
SG&A line a little bit, and some of the major components there, that would be great.
11