MAY 14, 2012 / 03:00PM GMT, PFSW - Q1 2012 PFSweb, Inc. Earnings Conference Call
At this time, its now my pleasure to turn the floor over to Mark
Layton, Chairman and CEO of PFSweb. Mark, the floor is yours.
Mark Layton - PFSweb, Inc. - Chairman,
Thanks, Garth. Good morning everyone. Appreciate your time this morning. Id like to welcome you to our 2012
first-quarter conference call. As we have in years past, Tom Madden, our Chief Financial Officer, Mike Willoughby, our President, are with me this morning. Well begin with providing you some prepared comments with an overview of our financial
results and some color to shape the first quarter. After that, we will be available for questions.
As you review our financial results that
we issued this morning for the first quarter of 2012, along with the results from quarter four of 2011, Im most excited and focused on the strong service fee revenue growth and the resulting improvement in adjusted EBITDA that we are
experiencing. These results provide us with good visibility into both the positive impact that increasing economics of scale provides, as well as the encouraging results we see and the overall financial viability of our business model. Scale and
financial model viability are clearly important milestones for our business, and we are encouraged to have been able to eclipse these points during the past two quarters.
As we look to the future, were focused on developing incremental services that help us lengthen the client lifecycle and provide us higher-margin potential. In doing so, we believe our business
model will benefit further from being better equipped to absorb volatility in revenue that occurs from the changes and our loss of certain client activities.
Its very encouraging to see the strong service fee revenue growth posted in Q1 of more than 50% when compared to last year. This growth is attributable to the ramp-up of new client agreements that
weve announced over the last year, along with organic growth from various clients. We are also undertaking certain activities aimed towards improving the quality and efficiency in our operational performance. The resulting improvements we have
experienced in service fee gross margin was offset by some lower margin activity from certain other new clients, but collectively these factors have directly led to an over 475% increase in adjusted EBITDA, when compared to the first quarter of
This past quarter, we successfully relocated to our new headquarters in Allen, Texas and to a new Dallas call center in the Downtown
Dallas Corridor. While all moves are challenging, our team did a fantastic job making the transition smooth and with minimal issues. These new facilities provided us an opportunity to incorporate into our workplace the latest and highly
collaborative and efficient space design. Also, our lease arrangements for both facilities provide outstanding flexibility to help us address need for additional space as may be required to support our future growth, as well as some rainy day
flexibility that will allow us to reduce space as that might be required.
In order to stay ahead of the market and anticipate the needs of
our clients, its important that we also continue to invest in new innovations. As I discussed last fall, we have begun development of a suite of additional service features that will allow us to make strides into the quickly evolving world of
multichannel digital commerce. This is a new world of commerce without traditional channel barriers that allows the consumer the freedom to purchase when, where and how they choose. We are calling this additional area of services Infinite Commerce,
and we will be branding the features under a product umbrella we have trademarked as iCommerce.
Key features of this suite of services will
include cross or multichannel fulfillment capabilities, a product information management, or PIM, solution, multiple mobile commerce platform features, and many more functionalities. We expect to begin actively marketing these capabilities during
2013, and we believe this will be an important segment of our growth potential over the next several years.
As we look to the rest of 2012,
our forecast for the year remains positive. The driving factors that will aid our continued growth will be new client programs that are currently in our pipeline, as well as organic growth from existing clients. The growth we experience by these new
deals will be offset by approximately three to six client programs that we currently expect will conclude or significantly reduce operations during 2012. We also expect further reductions in product revenue due to the impact of the reorganization
that weve covered over the last year, with our largest client relationship and our Supplies Distributors or Retail segment.