Mike Willoughby CEO
Zach Thomann COO and President
Tom Madden CFO
Jackie Keshner IR Advisor
James Rush Craig Hallum
Call transcript
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Good afternoon, everyone, and thank you for participating in today’s conference call to discuss PFSweb’s Q2 2022 results.

Joining us today are PFSweb’s CEO, Mike Willoughby; the COO and President of PFS, Zach Thomann; the company’s CFO, Tom Madden; and the company’s outside Investor Relations Advisor, Jackie Keshner, with Gateway Group.

Following their remarks, we’ll open the call for your questions. I would now like to turn the call over to Ms. Keshner for some introductory comments.

Jackie Keshner

you. Thank

release forward-looking further, statements. to conference will, All than facts, go remarks the call, guidance, would anticipate, historical the forward-looking replay way words concerning link statements are confidence, section as is of today replay starting I target, I expressed we expect, make this also will Any through like redistribution, following other believe, project remind website PFSweb Before available call estimate, of provided like The intend, well that the found statements. in forward-looking presentation in webcast website XXXX, statements XX, the this other at PFSweb as press as in and of be without strictly identify certain expressions can our statement. any disclaimer Investors X:XX full non-GAAP rebroadcast under are typically safe The similar prohibited. everyone for used filings August well this and today’s in relating would be to metrics p.m. and call harbor at will XX-K Eastern as used available statements. company’s the to company’s be in the this A forward-looking retransmission to Time. pfscommerce.com. on available consent via written or

Mike Now Mr. Mike? Willoughby. turn Executive call the like Officer I to would of over to PFSweb, Chief the

Mike Willoughby

and Jackie, afternoon, everyone. you, good Thank

from attention as we to equivalent order Though and business. grow second of face both price an in from value our offering inflation, contracts help by our shareholders. fulfillment During the continue revenue improving existing fulfillment driven work fulfillment-oriented second year-over-year, resources has in service margin positioned fee continued of continued and certain gross tailwinds and year. our clients. profitability these quarter, drive XX% implementing strong to on order we new our us momentum the fulfillment grew with e-commerce our pressure clients service to by wage to PFS advantage support the We We began half adjustments to focus client our Operations and to we taking fee mitigate in impacts believe operate effort an service for demand

first years buying demand consumer X behavior and have evolved. past XXXX, through the the half rapidly of Over and

elevated. Bank of weddings in-person saw retailers during challenges. macroeconomic of sizes their reopening the as retailers have retailers with of in trends, such are among years credit has According the events core box recessionary growth verticals, consumer higher and America, as U.S. rise of e-commerce many While the large these luxury pressures, initial habits. occasion a recently major maintained all In income contrast pandemic, spending from With many special across e-commerce rapid data return discretionary other April card robust affecting and or luxury have inflation luxury spending end consumer spending benefiting and several economy, costs the and and was up trends XX% the galas. consumers through brands. facing recessionary customers demand remained branded impacts debit brand chain broader prices slowdown even manufacturers and to increased now remain by U.S. experienced and to aggregated particularly supply of big our Despite

of to continued demand continued In addition, luxury, across goods. indicating branded wellness strength in manufacturers consumer high-end and products, have categories home leverage increased interest various

our clients branded our fulfillment our clients further While even we and clients, have robust positioning high-touch strengthen prospective services strategy in believe for and benefited pipeline. sales trends these broad consumer current multimode our

deploy retain ability have maximum to direct future pandemic, tailored of flexibility our changing have the convenient our the adapt has accommodate our brands changes luxury From commerce so far broader relationships. customized, highly team navigate provide PFS and macroeconomic and fulfillment needs solutions. our proven weathered efficient consumer and onset headwinds, While and capabilities brands offering to clients’ to experience quickly

as of growth we our we from growth XX% are our agility perform and annual new of clients remain client and We proven upper sales equivalent revenue and the to that service current at pipeline, growing reiterating evolve. SFE experiencing of fee previous in service optimistic encouraged X% revenue resiliency guidance offers the base conditions to e-commerce revenue. that We remain strength growth are will the end we annual our Our by range. fee

experience within gross revenue X% continue target from XX%. primarily to inflation, While service of business, we to fee percentage the XXXX of wage to we in adjusted the PFS EBITDA margin range also continue estimated equivalent pressures stand-alone

we activities to end overall we began more enhancements mentioned to putting certain place at steps on continued As client in QX. support towards of environment. the productivity of operations starting also structure. reallocating into impacts the work and further our inflationary several We’ve I cost optimizing have before, client QX, cost-effective And implemented in the adjustments alongside we mitigate arrangements, have price today’s wage taken

business further as make benefit We adjustments, the priority. period. these XXXX is rapidly still From to vigilant especially head of approaching pressures holiday the we expect our the our standpoint, alternatives for strategic a into to process and further the profitability our cost remain and pricing strategic completing inflationary potential broader while we PFS top be will throughout year, rest changes prepared to

strategic with Raymond range full for work priorities James to We of review business. a the to continue

completion transaction strategic a attractive will the in PFS we I’ll we drive to over we we While an a continue strengthening specific our to to discuss capital to return represents that, do as at financials At this potential hold that the present, time Tom? most detail. to turn for of and continue our second not to further time, believe Tom With platform opportunities. line second quarter shareholders. disclose way it the amount have shareholder value significant efficient completing

Tom Madden

Thank you, Mike.

XX% you to was by increase growth revenue, year foreign million in currency increased our period. business $XX.X XXXX existing driven QX primarily or non-GAAP declines both $XX.X terminations partially presentation, SFE clients, the fee ago PFS compared by by offset in see our the across for to and million new and will Europe. The As operations client service revenue, PFS during equivalent

impact, Excluding the the period. have ago to year approximately our foreign by increased would Operations PFS revenue SFE XX% currency relative

As as been which previously of March distributor disclosed, have product has we Ricoh discontinued terminated model XXXX, with them. our our subsequently agreement revenue with

going year. minimal have the this our discontinuation the our few comparative over may with program We eventual reduced size term product from significantly during years to revenue. equivalent QX short-term revenue of some in revenue of Eliminating as the confusion fee P&L recorded lead will past of our forward product analysis financial this service

comparative we believe have will results, minimal benefit financial and will and ultimately forward. on our our adjusted change going EBITDA impact a presentations the it However, clarify

service of XX% profit Our PFS QX gross Operations a gross margin fee the was to compared of revenue period. profit XXXX ago approximately XX% margin approximately PFS year in

the improvement to as primarily of this a nonfulfillment-related quarter and revenue, reduced project margin inflation year, year-over-year this While the first sequential reflects technology-related continued services impacts and such higher-margin the activity. relative of represents decrease industry-wide wage pressures

XX% the services, continue we margins fulfillment to to our continue core services, which generally As between believe closely center shift is more these to align will mix range XX%. we for typical with our and gross our towards contact

permanent client throughout new As surcharges and or Mike price to inflation and on to adjustments existing certain help continued reinstituted QX incremental pricing in mentioned, increases contracts we include programs. client wage pressures. offset implement either both These

higher in these the and a QX. not implementing expect of the the see we go QX thereby to of QX revenue gross While impact at of into QX the of or majority until changes began changes the and these We level margin beyond. QX, end from during effect did end and beginning of

a of supporting related transition we reductions corporate allowed LiveArea’s agreement, on our business further and cost of TSA operational April. work overhead PFS our As to adjustments concluded transition under or Merkle had all have services as to and to core TSA, reminder, Completing of all our structure. us while also focus obligations making a

As into with cost to structure and closely second move of we additional savings fulfillment-oriented business align drive continue more smaller we half our our will working the year, the model.

headquarters, reduce with disposition headquarters of itself, a similar we this landlord. arrangement or to our annual still a our SG&A aim with corporate complete associated reductions, focused and are the and overhead corporate the pursuing on year. implementing intend building including sublease substantially We are further which we or to costs the We complete

either As the cost inflationary last and on remotely demonstrating centers, operate we us or now ongoing most operation with believe with and will optimization controls help production price mentioned pressures and the broader performed adjustments, our co-located our greater call, our focus are productivity structural of of on corporate business. We office ultimately mitigate operational continued profitability. enhancements functions our our

to similar necessary, during and also continue to the are further we we peak the measures to adjustments we price indicated, holiday if pricing and Mike the economic periods. our structure As conditions, to make successful XXXX XXXX implemented prepared, monitor

XXXX to a I cost the operations restructuring by $X.X Our reductions $X.X EBITDA actual from EBITDA partially impacts loss improved of our year adjusted of adjusted reflects benefits of the ago in to gross million of and million period. loss an consolidated second compared primarily This in discussed the continuing initiatives, offset margin the quarter earlier.

acquired expenditures debt were exclusive and PFS property million. capital and leases, equipment financing for approximately of under in $X Our QX,

to facilities million We $XX continue $X and we XXXX new to range expect contracts. further expenditures between support capital our to as million

our million capital only million position relative balance cash of includes certain June $X.X to payments was over driven liquidity costs. as in $XXX of and of The primarily Our and XX, by expenditures funding decrease debt. the XXXX, and of tax other sequential cash QX approximately

throughout support these the remain we sheet additional balance opportunities As flexibility and growth with comfortable the our initiatives. of we to pursue year, strength

reaffirming for stated financial Operations As of revenue. annual Mike PFS revenue fee XXXX and SFE service stand-alone percentage are EBITDA stated, adjusted growth estimated PFS we our targets previously

estimated will nonpublic for corporate turn Zach as to our we the our overhead operational Zach? and measures to costs. review without sales EBITDA metric now in were QX environment PFS profitability I this business operating if over a call reminder, a highlights. As certain adjusted the current

Zach Thomann

strength the Through existing Tom. our core XXXX, leverage new second to to verticals and we portfolio. you, our our half and to continued of expand the across client add clients engagements demand Thank quarter have client first

for fulfillment allow As past growth; converting our robust executing greater growth in are on clients’ our top networks. both our serve detail, customers; line to clients. our comprises To product for better more pipeline two, and approach driving multimode speak Fulfillment-as-a-Service we which to our services dynamic across and existing for momentum, a to continued three-pronged strategy offering pipeline strong following our about fulfillment I’ve sales demand new calls, flexible and our one, our shared the expanding remains initiatives: maintaining three,

services. in recorded engagements fulfillment Taking American a client value. and contract the second management million contracts bookings During the of existing activity XX fulfillment first quarter at an brand worth new look These half new XXXX, new estimated through under North year. our of closer include bookings and annual combined we $XX for bookings order expansions the

$XX.X to renewal mix half have of total business-to-business to during first comprise These of and drive expansion bookings year of portfolio. QX clients first and demand a arrangements, QX the high of compared strong reported XX% a for Conversely, year We’ve flexibility both the of new the with $XX.X bookings this direct-to-consumer client a We year. the XX demonstrating during of the our XXXX. contract service value accounted XX% solid engagements recorded to combined and XX combined million annual million last through net period our of of new half for the estimated estimated same this between continued activity. compared with and

As improve such, value trend to carried we contract proposition existing business these progress the landed value -- we offer. expansions, client a we deals compared continue and have and this the average our this new higher to as growing annual development efforts new we’ve expect that year

fulfillment we have multinode offer to operational fulfillment our agility client expand the As partners. to our base we strategy, and leverage we continued

also weeks a rapidly this to fulfillment last-minute operations beginning program and core out fulfillment the of management including transportation Along providing operational after them launched new a U.S. growing challenges. their and brand, for order services to the with for just of As freight In we Todd’s picking, just navigate packing operation services, core channel began project May our these for Bath orders, at retail support care shipping. example of services Co., kickoff, various channel. the kitting, and are e-commerce growing one we supply campus, X baby Tubby providing brand’s the manage help direct-to-consumer we Todd fulfillment to Memphis drop-ship Tubby agility, e-commerce

center rapid planned in work has to on opening this customers a to fulfillment move of them second West swift complete allowed We meaningfully of launch from to the utilizing our our initial support with disruption. capabilities remain most recent year call, to fulfillment utilization. quickly the and occupancy optionality We multinode second by our a our to In deliver production Our branded new their setup highlighted the minimal center area. consistent for our high third client full to believe will this this Las Coast quarter clients. we in experience Vegas having the track enhance

existing proposed provide time-consuming currently systems a fulfillment had Given current the Las for solution XXXX, in Considering to the we orders to utilization using this already our without fulfill the we quickly at do this a of pop-up second we new our through end we or XX% trends first growth center. capacity receiving up the brand, Vegas by a using an our RetailConnect of half exceed To operation services we Fulfillment-as-a-Service with Irving, client expect product program, quickly facility units Texas-based within these to creative an a beauty loyalty client, point distribution provide our brand. fulfillment offering, completed for operation year. a Faced for redemption distribution product. if client After the pop-up update an not expensive set on integration. asking recently fulfill from our the we out our reached challenge project RetailConnect orders client

and provide X-day further only all through our orders a of no utilizing we computer validates the for system environment Vimaan, solutions a expertise. a traditional Following we capabilities Subsequent fulfilled over our hours, AIR initial inventory warehouse in and second fulfillment setup stage cost-efficient the X.X integrating warehouse for to In distribution multiple RetailConnect the drones fulfillment operation. launched control training pop-up to business our flying announced partnership and inventory units minimal within X,XXX fulfillment cases. operations of and staff environments retail technology project Memphis-based in fulfillment we the This quarter, StorTRACK the tracking centers. provider corporate enhanced within in and tracking, partnership, activities with configuration, further and effectiveness Fulfillment-as-a-Service recently XXX scenario product store with Vimaan’s be quality automate can are deployed management. of innovative one a vision-enabled a and solution our into delivering or

out location in the the first across XXXX. we global our deployment Following single this network roll technology fulfillment rest Memphis, through expect to of

With to momentum as our focused stand-alone and open and continuing strategic a leveraging work on continue As for business. additional we supporting our executing We we updates on look the efficiency pipeline fulfillment call our our up to to operational remainder and our our client objectives, year, growth we’ll and multinode now of we the structure progress. strategy providing the remain streamline look on cost through that, Q&A. to forward


question Instructions] first Hallum. [Operator Our with Craig George comes Sutton from

James Rush

This is James for George. results. on Great

you growth of to and back have half wanted your [indiscernible] visibility on Just touch XX% in ability the the the year outlook.

booked? your are So in Or already the you’ve off you based is converting wins pipeline? us the percent remind of some what volume-driven? first, of could just guide And is of more factoring revenue you

Zach Thomann

for the James. question. Sure, Thanks

majority of of back and the this look this reported one of clients’ with have based the a and guidance year. what activity we into the the in we’ve year, that planned obviously, had already far, earnings at revenue the year, from business of in expectations how of look on benefits half call. certainly, that With we’ve the insight and at positioning that, forecast perspective our visibility juncture this half back wins of current a really, year. the with thus booked bookings at client for into lot is we we’re the we of a we have is lot their And the As

James Rush

seeing the impressive. the cost and numbers first for And to bookings pretty bookings choose their of to brand a the driving Can strong on initiatives? just way then quite within you were costs half as you touch the And fulfillment part brands specifically, DXC new what’s Perfect. momentum? then more or reduce outsource are

Zach Thomann

is their programs really a as to we’re What shift a direct-to-consumer of into the question. And era brands in rethinking well great postpandemic with in are as the of go the core to lot within continue how continue really support. we both BXB what then and for created to an that exciting the programs. opportunities Again, PFS direct-to-consumer significant done new shift their bring and influx been Sure. that’s market channels, it’s seeing and they that brands to significant verticals That’s selective are that seen. we’ve be is

pressures initiatives with transportation really to new helping looking higher we’ve with have seen that is new The are other just associated at services around opportunities a these they customers. on we’ve brands services their are that and that fulfillment is really opportunities, the thing ACV things as can ancillary the had P&L what other provide which that the bookings drive those us PFS from is

Mike Willoughby

has that costs. transportation I multinode strategy the that James, also think implemented around been fulfillment especially Zach has helpful,

clients associated So to only consumer, carriers model. service better closer of we’re a reduce us more cost-effective of presence be enables the with carriers, many traditional to advantage move regional or to but seeing product points multiple order to them into the not more a drive leverage in costs, to much of transportation helps level and, national cases, and in more the take our

being helpful So us is now. for right the strategy super multinode

James Rush

to the space interest you of in the public of been in can sort market then me, And mean concerns. broader and extent have just talk the about valuations on with I decent there I macro strategic just general? Great. M&A even level some for sized about last talk you the coming in process, it, guess, in transactions can

So just any be incremental helpful. would detail there

Mike Willoughby

a provide can ton don’t detail. I that of we Yes. know

things I overall. give us think some good pause tell. to you a have macroeconomic I the things really think think as that about uncertainty, that like some But certainly we we conditions headwinds, around that, mentioned story of

we think a associated that great it. differentiators have with a has of I platform lot

that And indicated us market seeing, may of in a that, and pop really as be that we in we so to a are people our challenges. headwinds people these differentiation while some some are lot we’re is going hopeful where help to bucking headwinds some commentary, seeing

to as to that priority. have. look looking into that We’re do market have to on our to forward We our this continue capitalize top differentiators story take our and continue we

this expectation I and we’ll Our more information hope in about conclude That’s time. point year. as expectation. as process probably current give much able that this is to can say at our you But and be it’s the


[Operator At like to would Instructions] question-and-answer concludes for to over Mr. closing the this session. this now Willoughby back time, our call I remarks. turn

Mike Willoughby

and Thank you, to good external Lauren, quarter in to case that the to who forward being with everyone continue and normal the conference you. a Thank like I’d all as usual. be and the It’s remainder certainly this attended of we year back thank today. back and business look of the as throughout forward look with to compliance we expectations,


conclude this Ladies and gentlemen, teleconference. does today’s

your may Thank You disconnect for time. your lines participation. you at this