MAY 14, 2012 / 03:00PM GMT, PFSW - Q1 2012 PFSweb, Inc. Earnings Conference Call
Looking out over the next 12 to 24 months, we will continue to evolve our
offering to include new technology platforms and service offerings to keep our End2End e-commerce solution world-class, and to help us sustain our targeted gross margin performance for End2End solutions. To the extent we sign a few large single-silo
deals per year, such as a fulfillment only engagement, we would expect those deals to fall at the bottom end or even somewhat below our targeted range of 25 to 30 points gross margin.
One of the factors affecting our annual net growth rate is the occurrence of clients renewing or extending contracts at expiration. Although we have a good track record of re-signing clients, we certainly
have demonstrated an ability to expand client relationship programs over time. There is a natural lifecycle to these engagements, and one natural outcome of that lifecycle is terminated agreements. In March, we mentioned that we expect three to six
brand agreements to conclude or significantly reduce operations during 2012.
Carter’s is an example of a brand in transition. As we
stated last quarter, our Carter’s relationship has been a prime example of rapid joint success. After two years of rapid growth, Carter’s is now way ahead of where they originally planned with e-commerce sales for the full year 2012
expected to be significantly over $100 million.
Even though Carter’s didn’t forecast this type of rapid growth, they didn’t
miss the opportunity because their e-commerce program was fully supported by the backbone of our End2End platform, which, as deployed for their program, is able to support their growth through the first half of 2012. This relationship is a perfect
example of how important the scalability of our solution can be to our clients.
However, because of the rapid growth, which will naturally
drive additional investments in physical infrastructure, Carter’s has begun the process of bringing portions of the solution in-house, beginning with fulfillment later this year. Last month, Carter’s formally announced the signing of a new
lease for a new distribution facility, which supports their existing retail fulfillment operation and will support fulfillment for the online store. Although the Carter’s fulfillment business is a big contributor to our service fee revenues, we
will continue to operate portions of the solution for Carter’s into 2013. We expect our sales pipeline to help soak up the capacity this transition will create in our Memphis facility.
I also want to reiterate that it is very critical that we assist our clients in these transitions in such a way that the program continues to grow and be successful under our joint operation, and
ultimately even with a full transition to our clients. A successful transition leads to an ongoing positive reference from that client, and can even result in incremental business from that client in the future, such as a geographic expansion.
Clearly, the incidence of terminated agreements continues to put the spotlight on our business development efforts as we seek to sustain a
high annual growth rate. We have a new business pipeline of over $50 million in average annual contract value, and we continue to have many new contract and client programs, the majority of which are End2End programs set to launch over the next six
to nine months. These programs are for new or existing clients that span multiple industries, as we have continued to benefit from the emergence of several large product categories that are continuing to accelerate growth in the Web commerce space.
These include fashion, health and beauty and consumer packaged goods, or CPG. These new programs, combined with the organic growth that we’re experiencing from existing clients, will help offset the 2012 impact of the three to six client
programs that are wrapping up, and will help us achieve the targeted results indicated in our 2012 guidance.
Now I’ll turn the call over
to Tom for a review of our financial results for the quarter. Tom?
Tom Madden - PFSweb, Inc. - CFO, Chief
Accounting Officer
Thank you, Mike, and good morning everyone. I will provide further insight into our financial results for the March
quarter reported earlier today, as well as further details on our outlook for the rest of 2012.
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